0001292814-19-003688.txt : 20191105 0001292814-19-003688.hdr.sgml : 20191105 20191105165943 ACCESSION NUMBER: 0001292814-19-003688 CONFORMED SUBMISSION TYPE: 6-K PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20190930 FILED AS OF DATE: 20191105 DATE AS OF CHANGE: 20191105 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TELEFONICA BRASIL S.A. CENTRAL INDEX KEY: 0001066119 STANDARD INDUSTRIAL CLASSIFICATION: TELEPHONE COMMUNICATIONS (NO RADIO TELEPHONE) [4813] IRS NUMBER: 000000000 FILING VALUES: FORM TYPE: 6-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-14475 FILM NUMBER: 191194099 BUSINESS ADDRESS: STREET 1: AVENIDA ENGENHEIRO LUIS CARLOS BERRINI, STREET 2: 1376, CIDADE MONCOES CITY: SAO PAULO-SP STATE: D5 ZIP: 04571-936 BUSINESS PHONE: 55 11 3430-3687 MAIL ADDRESS: STREET 1: AVENIDA ENGENHEIRO LUIS CARLOS BERRINI, STREET 2: 1376, CIDADE MONCOES CITY: SAO PAULO-SP STATE: D5 ZIP: 04571-936 FORMER COMPANY: FORMER CONFORMED NAME: TELESP HOLDING CO DATE OF NAME CHANGE: 20051028 FORMER COMPANY: FORMER CONFORMED NAME: TELESP PARTICIPACOES SA DATE OF NAME CHANGE: 19980716 6-K 1 vivitr3q19_6k.htm VIVITR3Q19_6K vivitr3q19_6k.htm - Generated by SEC Publisher for SEC Filing

 

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K

REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 OR 15d-16 UNDER THE SECURITIES EXCHANGE ACT OF 1934

 

For the month of November, 2019

Commission File Number: 001-14475



TELEFÔNICA BRASIL S.A.
(Exact name of registrant as specified in its charter)

 

TELEFONICA BRAZIL S.A.  
(Translation of registrant’s name into English)

 

Av. Eng° Luís Carlos Berrini, 1376 -  28º andar
São Paulo, S.P.
Federative Republic of Brazil
(Address of principal executive office)


 

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F:

Form 20-F

X

 

Form 40-F

 

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):

Yes

 

 

No

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):

Yes

 

 

No

 

 

 

 

 
 

 

 

 

TELEFÔNICA BRASIL S.A.

 

 

QUARTERLY INFORMATION

 

SEPTEMBER 30, 2019


 
 

 

 

 

(A free translation of the original in Portuguese)

 

Report on review of quarterly information

 

 

To the Board of Directors and Stockholders

Telefônica Brasil S.A.

 

 

 

Introduction

 

We have reviewed the accompanying parent company and consolidated interim accounting information of Telefônica Brasil S.A. ("Parent company"), included in the Quarterly Information Form (ITR) for the quarter ended September 30, 2019, comprising the balance sheet at that date and the statements of income and comprehensive income for the quarter and nine-month period then ended, and the statements of changes in equity and cash flows for the nine-month period then ended, as well as a summary of significant accounting policies and other explanatory information.

 

Management is responsible for the preparation of the parent company and consolidated interim accounting information in accordance with the accounting standard CPC 21, Interim Financial Reporting, of the Brazilian Accounting Pronouncements Committee (CPC), and International Accounting Standard (IAS) 34 - Interim Financial Reporting issued by the International Accounting Standards Board (IASB), as well as the presentation of this information in accordance with the standards issued by the Brazilian Securities Commission (CVM), applicable to the preparation of the Quarterly Information (ITR). Our responsibility is to express a conclusion on this interim accounting information based on our review.

 

Scope of review

 

We conducted our review in accordance with Brazilian and International Standards on Reviews of Interim Financial Information (NBC TR 2410 - Review of Interim Financial Information Performed by the Independent Auditor of the Entity, and ISRE 2410 - Review of Interim Financial Information Performed by the Independent Auditor of the Entity, respectively). A review of interim information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with Brazilian and International Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

 

Conclusion on the interim information

 

Based on our review, nothing has come to our attention that causes us to believe that the accompanying parent company and consolidated interim accounting information included in the quarterly information referred to above has not been prepared, in all material respects, in accordance with CPC 21 and IAS 34 applicable to the preparation of the Quarterly Information, and presented in accordance with the standards issued by the CVM.

 

Other matters

 

Statements of value added

 

The quarterly information referred to above includes the parent company and consolidated statements of value added for the nine-month period ended September 30, 2019. These statements are the responsibility of the Company's management and are presented as supplementary information under IAS 34. These statements have been subjected to review procedures performed together with the review of the interim accounting information for the purpose of concluding whether they are reconciled with the interim accounting information and accounting records, as applicable, and if their form and content are in accordance with the criteria defined in the accounting standard CPC 09 - "Statement of Value Added". Based on our review, nothing has come to our attention that causes us to believe that these statements of value added have not been properly prepared, in all material respects, in accordance with the criteria established in this accounting standard, and consistent with the parent company and consolidated interim accounting information taken as a whole.


 
 

 

 

 

(A free translation of the original in Portuguese)

 

 

São Paulo, October 25, 2019

 

 

 

PricewaterhouseCoopers

Auditores Independentes

CRC 2SP000160/O-5

 

 

 

Sérgio Eduardo Zamora

Contador CRC 1SP168728/O-4

 

 

 

 


 
 

 

TELEFÔNICA BRASIL S.A.

Balance Sheets

At September 30, 2019 and December 31, 2018

(In thousands of reais)

 

 

 

 

 

 

 

 

(A free translation of the original in Portuguese)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Company

 

Consolidated

 

 

 

 

Company

 

Consolidated

ASSETS

Note

 

09.30.19

 

12.31.18

 

09.30.19

 

12.31.18

 

LIABILITIES AND EQUITY

Note

 

09.30.19

 

12.31.18

 

09.30.19

 

12.31.18

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current assets

 

 

20,485,257

 

18,241,374

 

20,720,846

 

18,362,992

 

Current liabilities

 

 

19,030,310

 

17,164,957

 

19,016,360

 

17,160,820

Cash and cash equivalents

3

 

4,377,594

 

3,275,300

 

4,548,256

 

3,381,328

 

Personnel, social charges and benefits

14

 

738,928

 

765,098

 

766,093

 

782,630

Trade accounts receivable

4

 

8,884,704

 

 8,246,991

 

8,930,780

 

8,304,382

 

Trade accounts payable

15

 

7,184,152

 

7,746,133

 

7,091,752

 

7,642,782

Inventories

5

 

664,797

 

460,800

 

670,079

 

462,053

 

Income and social contribution taxes payable

7

 

-

 

-

 

10,918

 

12,009

Prepaid expenses

6

 

767,591

 

581,261

 

769,267

 

581,743

 

Taxes, charges and contributions payable

16

 

1,273,399

 

1,739,516

 

1,290,212

 

1,797,965

Income and social contribution taxes recoverable

7

 

405,631

 

274,027

 

407,290

 

274,589

 

Dividends and interest on equity

17

 

5,864,804

 

4,172,916

 

5,864,804

 

4,172,916

Taxes, charges and contributions recoverable

8

 

4,809,581

 

4,671,959

 

4,813,911

 

4,674,218

 

Provisions and contingencies

18

 

415,571

 

377,926

 

426,464

 

377,929

Judicial deposits and garnishments

9

 

298,665

 

312,820

 

299,662

 

313,007

 

Loans, financing, debentures and leases

19

 

2,683,039

 

1,464,166

 

2,683,605

 

1,464,166

Dividends and interest on equity

17

 

-

 

51,785

 

-

 

-

 

Deferred revenue

20

 

517,859

 

525,509

 

517,859

 

525,509

Derivative financial instruments

30

 

11,999

 

69,065

 

11,999

 

69,065

 

Derivative financial instruments

30

 

886

 

16,158

 

886

 

16,538

Other assets

10

 

264,695

 

297,366

 

269,602

 

302,607

 

Other liabilities

21

 

351,672

 

357,535

 

363,767

 

368,376

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-current assets

 

 

90,031,984

 

84,192,902

 

89,962,934

 

84,198,326

 

Non-current liabilities

 

 

20,874,669

 

13,662,292

 

21,055,158

 

13,793,471

Long-term assets

 

 

4,914,843

 

7,379,263

 

5,258,432

 

7,760,357

 

Personnel, social charges and benefits

14

 

30,023

 

11,850

 

30,173

 

11,903

Short-term investments pledged as collateral

 

 

75,250

 

76,717

 

75,587

 

76,934

 

Taxes, charges and contributions payable

16

 

234,487

 

39,245

 

279,833

 

39,245

Trade accounts receivable

4

 

450,218

 

426,252

 

450,218

 

426,252

 

Deferred taxes

7

 

2,726,442

 

1,982,952

 

2,726,442

 

1,982,952

Prepaid expenses

6

 

142,793

 

134,209

 

142,806

 

134,232

 

Provisions and contingencies

18

 

5,613,166

 

5,754,207

 

5,739,312

 

5,881,396

Deferred taxes

7

 

-

 

-

 

186,715

 

230,097

 

Loans, financing, debentures and leases

19

 

11,026,538

 

4,675,271

 

11,026,819

 

4,675,271

Taxes, charges and contributions recoverable

8

 

848,880

 

3,222,262

 

848,883

 

3,222,262

 

Deferred revenue

20

 

204,996

 

250,526

 

206,975

 

250,526

Judicial deposits and garnishments

9

 

3,258,279

 

3,446,866

 

3,414,754

 

3,597,007

 

Derivative financial instruments

30

 

47,776

 

22,845

 

47,776

 

22,845

Derivative financial instruments

30

 

53,250

 

26,468

 

53,250

 

26,468

 

Other liabilities

21

 

991,241

 

925,396

 

997,828

 

929,333

Other assets

10

 

86,173

 

46,489

 

86,219

 

47,105

 

 

 

 

 

 

 

 

 

 

 

Investments

11

 

534,127

 

484,108

 

103,184

 

101,657

 

TOTAL LIABILITIES

 

 

39,904,979

 

30,827,249

 

40,071,518

 

30,954,291

Property, plant and equipment

12

 

43,044,033

 

34,109,139

 

43,058,998

 

34,115,327

 

 

 

 

 

 

 

 

 

 

 

Intangible assets

13

 

41,538,981

 

42,220,392

 

41,542,320

 

42,220,985

 

Equity

 

 

70,612,262

 

71,607,027

 

70,612,262

 

71,607,027

 

 

 

 

 

 

 

 

 

 

 

Capital

22

 

63,571,416

 

63,571,416

 

63,571,416

 

63,571,416

 

 

 

 

 

 

 

 

 

 

 

Capital reserves

22

 

1,165,463

 

1,213,532

 

1,165,463

 

1,213,532

 

 

 

 

 

 

 

 

 

 

 

Income reserves

22

 

4,337,652

 

4,324,170

 

4,337,652

 

4,324,170

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income acumulated

22

 

31,118

 

29,225

 

31,118

 

29,225

 

 

 

 

 

 

 

 

 

 

 

Retained earnings

22

 

1,506,613

 

-

 

1,506,613

 

-

 

 

 

 

 

 

 

 

 

 

 

Additional proposed dividends

22

 

-

 

2,468,684

 

-

 

2,468,684

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL ASSETS

 

 

  110,517,241

 

  102,434,276

 

 110,683,780

 

  102,561,318

 

TOTAL LIABILITIES AND EQUITY

 

 

  110,517,241

 

  102,434,276

 

  110,683,780

 

  102,561,318

 


 
 

 

TELEFÔNICA BRASIL S.A.

Statements of Income

Three and nine-month periods ended September 30, 2019 and 2018

(In thousands of reais, except earnings per share)

 

 

 

 

 

 

 

(A free translation of the original in Portuguese)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Company

 

Consolidated

 

 

 

Three-month periods ended

 

Nine-month periods ended

 

Three-month periods ended

 

Nine-month periods ended

 

Note

 

09.30.19

 

09.30.18

 

09.30.19

 

09.30.18

 

09.30.19

 

09.30.18

 

09.30.19

 

09.30.18

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net operating revenue

23

 

10,855,208

 

9,582,079

 

32,291,195

 

27,744,368

 

11,046,748

 

10,764,902

 

32,891,316

 

32,377,261

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of sales and services

24

 

  (5,460,509)

 

  (4,786,097)

 

(16,275,649)

 

(14,439,206)

 

  (5,488,873)

 

  (5,102,307)

 

(16,351,888)

 

(15,426,953)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross profit

 

 

5,394,699

 

4,795,982

 

16,015,546

 

13,305,162

 

5,557,875

 

5,662,595

 

16,539,428

 

16,950,308

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income (expenses)

 

 

  (3,677,433)

 

  (2,404,190)

 

(11,150,948)

 

  (7,614,988)

 

  (3,721,549)

 

  (2,916,666)

 

(11,303,356)

 

  (9,217,666)

Selling expenses

24

 

  (3,167,033)

 

  (2,916,086)

 

  (9,541,329)

 

  (8,992,970)

 

  (3,182,328)

 

  (3,162,840)

 

  (9,597,927)

 

  (9,653,228)

General and administrative expenses

24

 

  (640,207)

 

  (603,334)

 

  (1,791,260)

 

  (1,816,451)

 

  (645,402)

 

  (624,738)

 

  (1,803,194)

 

  (1,896,390)

Other operating income

25

 

301,775

 

1,643,421

 

655,210

 

4,338,824

 

302,961

 

1,554,155

 

619,592

 

3,780,383

Other operating expenses

25

 

  (171,968)

 

  (528,191)

 

  (473,569)

 

  (1,144,391)

 

  (196,780)

 

  (683,243)

 

  (521,827)

 

  (1,448,431)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating profit

 

 

1,717,266

 

2,391,792

 

4,864,598

 

5,690,174

 

1,836,326

 

2,745,929

 

5,236,072

 

7,732,642

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial income

26

 

332,363

 

1,343,614

 

899,817

 

3,591,085

 

340,234

 

1,371,964

 

918,398

 

3,699,511

Financial expenses

26

 

  (642,287)

 

  (709,216)

 

  (1,542,545)

 

  (1,723,061)

 

  (646,133)

 

  (718,257)

 

  (1,554,863)

 

  (1,747,420)

Equity in results of investees

11

 

80,481

 

237,599

 

249,722

 

1,384,419

 

  (774)

 

  (5,541)

 

  (714)

 

  (4,914)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income before taxes

 

 

1,487,823

 

3,263,789

 

4,471,592

 

8,942,617

 

1,529,653

 

3,394,095

 

4,598,893

 

9,679,819

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income and social contribution taxes

7

 

  (522,710)

 

(86,525)

 

  (744,832)

 

 (1,501,037)

 

  (564,540)

 

  (216,831)

 

  (872,133)

 

  (2,238,239)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income for the period

 

 

965,113

 

3,177,264

 

3,726,760

 

7,441,580

 

965,113

 

3,177,264

 

3,726,760

 

7,441,580

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted earnings per common share (in R$)

22

 

0.54

 

1.76

 

2.07

 

4.13

 

 

 

 

 

 

 

 

Basic and diluted earnings per preferred share (in R$)

22

 

0.59

 

1.94

 

2.28

 

4.55

 

 

 

 

 

 

 

 

 

 


 
 

 

TELEFÔNICA BRASIL S.A.

Statements of Changes in Equity

Nine-month periods ended September 30, 2019 and 2018

(In thousands of reais)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(A free translation of the original in Portuguese)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital reserves

 

Income reserves

 

 

 

 

 

 

 

 

 

Capital

 

Special goodwill reserve

 

Other capital reserves

 

Treasury shares

 

Legal reserve

 

Tax incentive reserve

 

Expansion and modernization reserve

 

Retained earnings

 

 Proposed additional dividends

 

Other comprehensive income acumulated

 

Total equity

Balances at December 31, 2017

   63,571,416

 

  63,074

 

1,238,268

 

  (87,820)

 

2,138,344

 

   27,884

 

  297,000

 

   -  

 

2,191,864

 

21,328

 

   69,461,358

Effects of the initial adoption of IFRS 9 and 15, net of taxes

-

 

-

 

   -

 

   -

 

   -

 

   -

 

-

 

  (138,663)

 

   -

 

   -

 

(138,663)

Balances at January 1, 2018

   63,571,416

 

  63,074

 

1,238,268

 

  (87,820)

 

2,138,344

 

   27,884

 

  297,000

 

  (138,663)

 

2,191,864

 

21,328

 

   69,322,695

Payment of additional dividend for 2017

-

 

-

 

   -

 

   -

 

   -

 

   -

 

-

 

  -

 

  (2,191,864)

 

   -

 

   (2,191,864)

Unclaimed dividends and interest on equity

-

 

-

 

   -

 

   -

 

   -

 

   -

 

-

 

   76,520

 

   -

 

  -

 

  76,520

DIPJ adjustment - Tax incentives

-

 

-

 

   -

 

   -

 

   -

 

   8,409

 

-

 

   (8,409)

 

   -

 

   -

 

  -  

Other comprehensive income

-

 

-

 

   -

 

   -

 

   -

 

   -

 

-

 

  -

 

   -

 

12,565

 

  12,565

Net income for the period

-

 

-

 

   -

 

   -

 

   -

 

   -

 

-

 

   7,441,580

 

   -

 

   -

 

  7,441,580

Interim interest on equity

-

 

-

 

   -

 

   -

 

   -

 

   -

 

-

 

(3,200,000)

 

   -

 

   -

 

   (3,200,000)

Balances at September 30, 2018

   63,571,416

 

  63,074

 

1,238,268

 

  (87,820)

 

2,138,344

 

   36,293

 

  297,000

 

   4,171,028

 

-  

 

33,893

 

   71,461,496

Unclaimed dividends and interest on equity

-

 

-

 

   -

 

   -

 

   -

 

   -

 

-

 

   76,250

 

   -

 

   -

 

  76,250

DIPJ adjustment - Tax incentives

-

 

-

 

   -

 

   -

 

   -

 

   3,120

 

-

 

   (3,120)

 

   -

 

  -

 

  -  

Other comprehensive income

-

 

-

 

   -

 

   -

 

   -

 

   -

 

-

 

(62,739)

 

   -

 

  (4,668)

 

   (67,407)

Equity transactions

-

 

-

 

  10

 

   -

 

   -

 

   -

 

-

 

  -

 

   -

 

   -

 

10

Net income for the period

-

 

-

 

   -

 

   -

 

   -

 

   -

 

-

 

   1,486,678

 

   -

 

   -

 

  1,486,678

Allocation of income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  Legal reserve

-

 

-

 

   -

 

   -

 

446,413

 

   -

 

-

 

  (446,413)

 

   -

 

   -

 

  -  

  Interim interest on equity

-

 

-

 

   -

 

   -

 

   -

 

   -

 

-

 

(1,350,000)

 

   -

 

   -

 

   (1,350,000)

  Reversal of expansion and Modernization Reserve

-

 

-

 

   -

 

   -

 

   -

 

   -

 

(297,000)

 

   297,000

 

   -

 

   -

 

  -  

  Expansion and Modernization Reserve

-

 

-

 

   -

 

   -

 

   -

 

   -

 

  1,700,000

 

(1,700,000)

 

   -

 

   -

 

  -  

  Additional proposed dividends

-

 

-

 

   -

 

   -

 

   -

 

   -

 

-

 

(2,468,684)

 

2,468,684

 

   -

 

  -  

Balances at December 31, 2018

   63,571,416

 

  63,074

 

1,238,278

 

  (87,820)

 

2,584,757

 

   39,413

 

  1,700,000

 

   -  

 

2,468,684

 

29,225

 

   71,607,027

Payment of additional dividend for 2018

-

 

-

 

   -

 

   -

 

   -

 

   -

 

-

 

  -

 

  (2,468,684)

 

   -

 

   (2,468,684)

Unclaimed dividends and interest on equity

-

 

-

 

   -

 

   -

 

   -

 

   -

 

-

 

   31,335

 

   -

 

  -

 

  31,335

DIPJ adjustment - Tax incentives

-

 

-

 

   -

 

   -

 

   -

 

   13,482

 

-

 

(13,482)

 

   -

 

   -

 

 -  

Reflection of capital transactions in subsidiary (Not3 1.c1)

-

 

-

 

  (48,135)

 

   -

 

   -

 

   -

 

-

 

  -

 

   -

 

   -

 

   (48,135)

Other

-

 

-

 

  66

 

   -

 

   -

 

   -

 

-

 

  -

 

   -

 

   -

 

66

Other comprehensive income

-

 

-

 

   -

 

   -

 

   -

 

   -

 

-

 

  -

 

   -

 

   1,893

 

1,893

Net income for the period

-

 

-

 

   -

 

   -

 

   -

 

   -

 

-

 

   3,726,760

 

   -

 

   -

 

  3,726,760

Interim interest on equity

-

 

-

 

   -

 

   -

 

   -

 

   -

 

-

 

(2,238,000)

 

   -

 

   -

 

   (2,238,000)

Balances at September 30, 2019

   63,571,416

 

  63,074

 

1,190,209

 

  (87,820)

 

2,584,757

 

   52,895

 

  1,700,000

 

   1,506,613

 

-  

 

31,118

 

   70,612,262

 


 
 

 

TELEFÔNICA BRASIL S.A.

Statements of Other Comprehensive Income

Three and nine-month periods ended September 30, 2019 and 2018

(In thousands of reais)

 

 

 

 

 

 

 

 

 

 

 

(A free translation of the original in Portuguese)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Company

 

Consolidated

 

 

Three-month periods ended

 

Nine-month periods ended

 

Three-month periods ended

 

Nine-month periods ended

 

 

09.30.19

 

09.30.18

 

09.30.19

 

09.30.18

 

09.30.19

 

09.30.18

 

09.30.19

 

09.30.18

Net income for the period

 

965,113

 

3,177,264

 

3,726,760

 

7,441,580

 

965,113

 

3,177,264

 

3,726,760

 

7,441,580

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (losses) that may be reclassified into income (losses) in subsequent periods

 

(2,194)

 

2,725

 

1,869

 

  12,834

 

(2,194)

 

2,725

 

1,869

 

  12,834

Losses on derivative financial instruments

 

(9,241)

 

(490)

 

(509)

 

(1,972)

 

(9,241)

 

(490)

 

(509)

 

(1,972)

Taxes

 

3,142

 

166

 

173

 

670

 

3,142

 

166

 

173

 

670

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cumulative Translation Adjustments (CTA) on transactions in foreign currency

 

3,905

 

3,049

 

2,205

 

  14,136

 

3,905

 

3,049

 

2,205

 

  14,136

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (losses) not to be reclassified into income (losses) in subsequent periods

 

  (48)

 

(169)

 

24

 

(269)

 

  (48)

 

(169)

 

24

 

(269)

Unrealized gains ( losses) on financial assets at fair value through other comprehensive income

 

  (72)

 

(257)

 

36

 

(408)

 

  (72)

 

(257)

 

36

 

(408)

Taxes

 

24

 

88

 

  (12)

 

139

 

24

 

88

 

  (12)

 

139

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest in comprehensive income of subsidiaries

 

  -

 

  (23)

 

  -

 

  -

 

  -

 

  (23)

 

  -

 

  -

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income

 

(2,242)

 

2,533

 

1,893

 

  12,565

 

(2,242)

 

2,533

 

1,893

 

 12,565

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income for the period - net of taxes

 

962,871

 

3,179,797

 

3,728,653

 

7,454,145

 

962,871

 

3,179,797

 

3,728,653

 

7,454,145

 
 

 
 

 

TELEFÔNICA BRASIL S.A.

Statements of Value Added

Nine-month periods ended September 30, 2019 and 2018

(In thousands in reais)

 

 

 

 

 

(A free translation of the original in Portuguese)

 

 

 

 

 

 

 

 

 

 

 

Company

 

Consolidated

 

 

09.30.19

 

09.30.18

 

09.30.19

 

09.30.18

 

 

 

 

 

 

 

 

 

Revenues

 

  42,524,748

 

  42,171,479

 

  43,113,965

 

  46,400,252

Sale of goods and services

 

  42,640,171

 

  38,064,521

 

  43,326,014

 

  43,312,730

Other revenues

 

1,128,137

 

5,118,854

 

1,053,554

 

4,256,458

Impairment losses - trade accounts receivable

 

   (1,243,560)

 

   (1,011,896)

 

   (1,265,603)

 

   (1,168,936)

 

 

 

 

 

 

 

 

 

Inputs acquired from third parties

 

(14,781,618)

 

(13,755,316)

 

(14,868,727)

 

(15,034,545)

Cost of goods and products sold and services rendered

 

   (8,592,824)

 

   (7,224,505)

 

   (8,658,494)

 

   (8,265,479)

Materials, electric energy, third-party services and other expenses

 

   (6,426,082)

 

   (6,557,818)

 

   (6,446,507)

 

   (6,797,691)

Loss/recovery of assets

 

237,288

 

  27,007

 

236,274

 

  28,625

 

 

 

 

 

 

 

 

 

Gross value added

 

  27,743,130

 

  28,416,163

 

  28,245,238

 

  31,365,707

 

 

 

 

 

 

 

 

 

Withholdings

 

   (7,928,484)

 

   (6,019,692)

 

   (7,930,536)

 

   (6,045,916)

Depreciation and amortization

 

   (7,928,484)

 

   (6,019,692)

 

   (7,930,536)

 

   (6,045,916)

 

 

 

 

 

 

 

 

 

Net value added produced

 

  19,814,646

 

  22,396,471

 

  20,314,702

 

  25,319,791

 

 

 

 

 

 

 

 

 

Value added received in transfer

 

1,149,539

 

4,975,504

 

917,684

 

3,694,597

Equity pickup

 

249,722

 

1,384,419

 

   (714)

 

   (4,914)

Financial income

 

899,817

 

3,591,085

 

918,398

 

3,699,511

 

 

 

 

 

 

 

 

 

Total undistributed value added

 

  20,964,185

 

  27,371,975

 

  21,232,386

 

  29,014,388

 

 

 

 

 

 

 

 

 

Distribution of value added

 

  20,964,185

 

  27,371,975

 

  21,232,386

 

  29,014,388

 

 

 

 

 

 

 

 

 

Personnel,social charges and benefits

 

3,041,441

 

3,008,584

 

3,083,153

 

3,397,590

Direct compensation

 

2,031,723

 

2,110,497

 

2,059,004

 

2,348,845

Benefits  

 

867,373

 

773,405

 

879,286

 

903,007

Government Severance Indemnity Fund for Employees (FGTS)

 

142,345

 

124,682

 

144,863

 

145,738

Taxes, charges and contributions

 

  11,595,825

 

  13,038,418

 

  11,809,295

 

  14,250,182

Federal 

 

3,877,439

 

5,187,002

 

4,073,653

 

6,292,373

State 

 

7,508,117

 

7,730,243

 

7,510,074

 

7,748,615

Local

 

210,269

 

121,173

 

225,568

 

209,194

Debt remuneration

 

2,600,159

 

3,883,393

 

2,613,178

 

3,925,036

Interest

 

1,520,780

 

1,565,295

 

1,531,739

 

1,585,883

Rental

 

1,079,379

 

2,318,098

 

1,081,439

 

2,339,153

Equity remuneration

 

3,726,760

 

7,441,580

 

3,726,760

 

7,441,580

Interest on equity

 

2,238,000

 

3,200,000

 

2,238,000

 

3,200,000

Retained profit

 

1,488,760

 

4,241,580

 

1,488,760

 

4,241,580

 

 


 
 

 

TELEFÔNICA BRASIL S.A.

Statements of Cash Flows

Nine-month periods ended September 30, 2019 and 2018

(In thousands in reais)

 

 

 

 

 

(A free translation of the original in Portuguese)

 

 

 

 

 

 

 

 

 

 

 

Company

 

Consolidated

 

 

09.30.19

 

09.30.18

 

09.30.19

 

09.30.18

Cash flows from operating activities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income before taxes

 

4,471,592

 

8,942,617

 

4,598,893

 

9,679,819

Ajustement for:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

7,928,484

 

6,019,692

 

7,930,536

 

6,045,916

Foreign exchange gains on loans and derivative financial instruments

 

   (277)

 

  37,579

 

   (657)

 

  39,176

Indexation accruals on assets and liabilities

 

457,748

 

614,751

 

459,772

 

614,356

Equity pickup

 

   (249,722)

 

   (1,384,419)

 

714

 

4,914

Loss (gains) on write-off/sale of assets

 

   (176,922)

 

4,453

 

   (175,892)

 

4,777

Impairment losses - trade accounts receivable

 

1,243,560

 

1,011,896

 

1,265,603

 

1,168,936

Change in liability provisions

 

  18,307

 

   (272,570)

 

(13,052)

 

   (235,954)

Write-off and reversals for impairment - inventories

 

(60,367)

 

(31,461)

 

(60,367)

 

(33,402)

Pension plans and other post-retirement benefits

 

  44,352

 

  35,593

 

  44,781

 

  36,860

Provisions for tax, civil, labor and regulatory contingencies

 

473,569

 

983,676

 

479,915

 

995,695

Interest expense

 

620,931

 

380,371

 

620,987

 

380,371

Others

 

(77,575)

 

   (3,210)

 

(77,511)

 

   (3,464)

 

 

 

 

 

 

 

 

 

Changes in assets and liabilities

 

 

 

 

 

 

 

 

Trade accounts receivable

 

   (1,905,239)

 

   (1,340,124)

 

   (1,883,105)

 

   (1,509,231)

Inventories

 

   (143,630)

 

(65,764)

 

   (143,541)

 

(77,156)

Taxes recoverable

 

  82,890

 

   (5,985,851)

 

  82,491

 

   (5,863,914)

Prepaid expenses

 

   (193,980)

 

(83,143)

 

   (194,596)

 

(80,719)

Other assets

 

  46,024

 

270,279

 

  47,167

 

(14,304)

Personnel, social charges and benefits

 

   (7,997)

 

  31,804

 

   (5,311)

 

  39,861

Trade accounts payable

 

124,973

 

652,129

 

148,147

 

987,401

Taxes, charges and contributions

 

1,419,265

 

(33,764)

 

1,416,665

 

(74,001)

Provisions for tax, civil, labor and regulatory contingencies

 

   (1,052,112)

 

   (3,639,390)

 

   (1,060,757)

 

   (3,651,633)

Other liabilities

 

5,412

 

   (172,733)

 

5,091

 

   (164,089)

 

 

8,597,694

 

   (2,970,206)

 

8,887,080

 

   (1,389,604)

 

 

 

 

 

 

 

 

 

Cash generated from operations

 

  13,069,286

 

5,972,411

 

  13,485,973

 

8,290,215

 

 

 

 

 

 

 

 

 

Interest paid

 

   (593,588)

 

   (410,585)

 

   (593,643)

 

   (410,585)

Income and social contribution taxes paid

 

  -

 

(11,841)

 

(81,288)

 

   (529,039)

 

 

 

 

 

 

 

 

 

Net cash generated by operating activities

 

  12,475,698

 

5,549,985

 

  12,811,042

 

7,350,591

 

 

 

 

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

 

 

 

 

Additions to PP&E and intangible assets and others

 

   (6,582,010)

 

   (5,673,471)

 

   (6,582,056)

 

   (5,894,024)

Proceeds from sale of PP&E

 

469,070

 

3,883

 

469,089

 

3,883

Cash paid for acquisition of companies

 

  -

 

  -

 

(70,844)

 

  -

Redemption of judicial deposits

 

210,374

 

2,701,127

 

210,834

 

2,704,974

Dividends and interest on equity received

 

205,660

 

1,586,709

 

  -

 

  -

Cash and cash equivalents by acquisition

 

  -

 

  -

 

5,760

 

  -

 

 

 

 

 

 

 

 

 

Net cash used in investing activities

 

   (5,696,906)

 

   (1,381,752)

 

   (5,967,217)

 

   (3,185,167)

 

 

 

 

 

 

 

 

 

Cash flows from financing activities

 

 

 

 

 

 

 

 

Payment of loans, financing, debentures and leases

 

   (3,094,199)

 

   (2,524,301)

 

   (3,094,596)

 

   (2,524,301)

Receipts - derivative financial instruments

 

165,449

 

  96,108

 

165,636

 

  96,726

Payments - derivative financial instruments

 

(94,230)

 

(68,297)

 

(94,419)

 

(71,209)

Dividend and interest on equity paid

 

   (2,653,518)

 

   (2,003,224)

 

   (2,653,518)

 

   (2,003,224)

 

 

 

 

 

 

 

 

 

Net cash used in financing activities

 

   (5,676,498)

 

   (4,499,714)

 

   (5,676,897)

 

   (4,502,008)

 

 

 

 

 

 

 

 

 

Decrease in cash and cash equivalents

 

1,102,294

 

   (331,481)

 

1,166,928

 

   (336,584)

 

 

 

 

 

 

 

 

 

Cash and cash equivalents at the beginning of the period

 

3,275,300

 

3,681,173

 

3,381,328

 

4,050,338

Cash and cash equivalents at the end of the  period

 

4,377,594

 

3,349,692

 

4,548,256

 

3,713,754

 

 


 
 

(A free translation of the original in Portuguese)

 

Telefônica Brasil S. A.

NOTES TO THE QUARTERLY FINANCIAL STATEMENTS

Three and nine-month periods ended September 30, 2019

(In thousands of Reais, unless otherwise stated)

                                           

1)   OPERATIONS

 

a) Background information

 

Telefônica Brasil S.A. (the “Company” or “Telefônica Brasil”) is a publicly-held corporation whose corporate purpose includes operating telecommunications services; development of activities necessary or complementary to the execution of such services, in accordance with the concessions, authorizations and permissions granted; exploration of value-added services; offering of integrated solutions, management and provision of services related to: (i) data centers, including hosting and co-location; (ii) storage, processing and management of data, information, texts, images, videos, applications and information systems and similar; (iii) information technology; (iv) information and communication security; (v) telecommunications; and (vi) electronic security systems; licensing and sublicensing of software of any nature, among others.

 

The Company’s principal offices are located at Avenida Engenheiro Luiz Carlos Berrini, No. 1376, in the city and state of São Paulo, Brazil. It is a member of the Telefónica Group (“Group”), based in Spain and operates in several countries across Europe and Latin America.

 

At September 30, 2019 and December 31, 2018, Telefónica S.A. (“Telefónica”), the Group holding company, held a total direct and indirect interest in the Company of 73.58% (Note 22).

 

The Company is registered with the Brazilian Securities Commission ("CVM") as a publicly held company under Category A (issuers authorized to trade any marketable securities). Its shares are listed on the B3 (the stock exchange arising from the combination of BM&FBovespa and CETIP – Central Custody and Settlement of Securities). The Company is also registered with the Securities and Exchange Commission ("SEC"), of the United States of America, and its American Depositary Shares ("ADSs") Level II, backed preferred shares are traded on the New York Stock Exchange ("NYSE").

 

b) Operations

 

The Company renders services for: (i) Fixed Switched Telephone Service Concession Arrangement ("STFC"); (ii) Multimedia Communication Service ("SCM", data communication, including broadband internet); (iii) Personal Mobile Service ("SMP"); and (iv) Conditioned Access Service ("SEAC" - Pay TV), throughout Brazil, through concessions and authorizations, as established in the General Plan of Concessions ("PGO").

 

Service concessions and authorizations are granted by Brazil's Telecommunications Regulatory Agency ("ANATEL"), the agency responsible for the regulation of the Brazilian telecommunications sector under the terms of Law No. 9472 of July 16, 1997 - General Telecommunications Law ("Lei Geral das Telecomunicações" - LGT), amended by Laws No. 9986, of July 18, 2000, and No. 12485, of September 12, 2011. The concessions are subject to supplementary regulations and plans.

 

In accordance with the STFC service concession agreement, every two years, during the agreement's 20-year term to December 31, 2025, the Company will pay a fee equivalent to 2% of its prior-year STFC revenue, net of applicable taxes and social contribution taxes (Note 21).

 

In accordance with the SMP terms of authorization for the usage of radio frequencies, every two years after the first renewal of these agreements, the Company will pay a fee equivalent to 2% of its prior-year SMP revenue, net of applicable taxes and social contribution taxes (Note 21), and, in the 15th year, the Company will pay 1% of its prior-year revenue. The calculation will consider the net revenue from Basic and Alternative Services Plans. These agreements can be extended only once for a term of 15 years.

The summarized information about on the authorizations for the use of radiofrequency bands for SMP granted to the Company is consistent with the detailed description in Note 1b) Operations in the financial statements for the year ended December 31, 2018.

 

 

 

 

Page 10


 

(A free translation of the original in Portuguese)

 

Telefônica Brasil S. A.

NOTES TO THE QUARTERLY FINANCIAL STATEMENTS

Three and nine-month periods ended September 30, 2019

(In thousands of Reais, unless otherwise stated)

                                           

c) Corporate events that occurred in 2019 and 2018

 

c.1) Acquisition of TIS by Wholly Owned Subsidiary - 2019

 

 

On September 26, 2019, the Company announced that its wholly-owned subsidiary Terra Networks Brasil S.A. ("Terra Networks") had acquired all the shares representing the capital stock of Telefônica Infraestrutura e Segurança Ltda. ("TIS"), owned by Telefônica Ingeniería de Seguridad S.A. and Telefônica Digital Espanã, S.L.U. ("Transaction").

 

TIS renders services and technology of information security systems, technical support and other services related to the infrastructure, technology and information.

 

The Transaction will enable Terra Networks, which includes among its activities the development of systems, to expand consulting and operational assistance, maximize commercialization of systems, licenses and applications, enabling the expansion of the portfolio of professional and managed services and the allow for the integration of the TIS and Terra Networks business offerings generating added value for the Company's client portfolio. Synergies will accrue from the companies as these are under the same management, in the activities of information technology, security, IoT and connectivity.

 

The TIS share price purchase consideration was R$70,844, due in a single installment. This was paid in cash by Terra Networks without need of financing. The purchase price was calculated based on the economic value of the TIS on the discounted cash flow criterion, at August 31, 2019, based on an appraisal report contracted by Terra Networks’ Board of Directors.

 

The Transaction sale and purchase agreement contains terms and provisions common to such transactions, such as seller's representations and warranties, indemnity and others. The Transaction was also preceded by an accounting, financial, legal and procedural audit of TIS.

 

Completion of the Transaction is not subject to regulatory or regulatory authorizations, or approvals by Company bodies. It was approved by Terra Networks' Board of Executive Officers pursuant to its by-laws.

The Transaction does not change the Company's ownership structure or cause any dilution to its shareholder value by accelerating their growth and increasing operational efficiency.

 

Accounting Method


As business combinations between entities under common control have not yet been specifically addressed by International Financial Reporting Standards (IFRS), an entity is required to apply the hierarchy in paragraphs 10-12 of IAS 8 - Accounting Policies, Change of Estimates and Error Correction to choose the accounting policy to be adopted.

 

An entity may, therefore, choose to account for combinations of entities under common control using the Acquisition Method based on IFRS 3 (R) or the carrying amount of the net assets acquired ("Pooling of Interests" or "Predecessor Value Method"), with the guidance provided by other accounting standard-setting bodies with a Conceptual Framework similar to IFRSs.

 

This Transaction, which involves companies under common control, was accounted for at the book value of the net assets acquired (“Predecessor Value Method”), as certain requirements for the use of the acquisition method set forth in IFRS 3 (R). Consequently, the difference between the consideration given in exchange for the equity interest obtained and the value of the net assets acquired was recorded in Terra Network’s equity.

 

Upon completion of the Transaction, as from September 1, 2019, TIS became a direct subsidiary of Terra Networks and indirectly owned by the Company.

 

Below is the composition of the R$22,709 of book value of identifiable net assets acquired.

Page 11


 
 

(A free translation of the original in Portuguese)

 

Telefônica Brasil S. A.

NOTES TO THE QUARTERLY FINANCIAL STATEMENTS

Three and nine-month periods ended September 30, 2019

(In thousands of Reais, unless otherwise stated)

 

Current assets

46,841

 

Current liabilities

35,044

   Cash and cash equivalents

   5,760

 

  Personnel, social charges and benefits 

   7,044

   Accounts receivable

32,862

 

  Trade accounts payable 

16,608

   Inventories

   4,119

 

  Taxes, charges and contributions payable

   2,443

   Prepaid expenses

   568

 

   Provisions and contingencies

   7,812

   Judicial deposits and garnishments

   214

 

  Other liabilities 

   1,137

   Income and social contribution taxes recoverable

   951

 

 

 

   Taxes, charges and contributions recoverable

   2,024

 

Non-current liabilities

   3,257

   Other assets

   343

 

  Taxes, charges and contributions 

   351

 

 

 

  Deferred income

   877

Non-current assets

14,169

 

  Other liabilities 

   2,029

   Taxes, charges and contributions recoverable

   2

 

 

 

   Judicial deposits and garnishments

   3,348

 

 

 

   Other assets

  11

 

 

 

   Property and equipment

10,212

 

Book value of assumed liabilities

38,301

   Intangible assets

   596

 

 

 

 

 

 

Book value of identifiable net assets acquired

22,709

 

 

 

 

 

 

 

 

Total consideration

70,844

 

 

 

 

 

Book value of assets acquired

61,010

 

Adjustment to equity in Terra Networks and Company

48,135

 

Other information


The net book value of trade accounts receivable provided by TIS totals R$32,862, does not differ from the gross amount of R$44,754, net of estimated losses for impairment of R$11,892.


c.2)
Corporate Restructuring - 2018

 

The information on the corporate restructuring, following the merger of the wholly-owned subsidiary Telefônica Data SA ("TData") by the Company, with effect from December 1, 2018, is the consistent with the detailed description in Note 1.c .1) Corporate Restructuring - 2018 in the financial statements for the year ended December 31, 2018.

 

2)    BASIS OF PREPARATION AND PRESENTATION OF THE QUARTERLY FINANCIAL STATEMENTS

 

 

a) Statement of compliance

 

The individual (Company) and consolidated quarterly financial statements were prepared and are presented in accordance with Technical Pronouncement CPC 21 (R1) - Interim Financial Statements, issued by the Accounting Pronouncements Committee ("CPC") and the international standard IAS 34 - Interim Financial Reporting, issued by the International Accounting Standards Board ("IASB") and consistent with the deliberations issued by the CVM, applicable to the preparation of the ITRs.

 

b) Basis of preparation and presentation

 

The quarterly financial statements were prepared on a historical cost basis (except where different criteria are required) and adjusted to reflect the valuation of assets and liabilities measured at fair value.

 

All significant information in the quarterly financial statements, and solely such information, is disclosed and corresponds to that used by Company management for administration purposes.

 

The Statement of Cash Flows was prepared in accordance with IAS 7 - Statement of Cash Flows and reflects the changes in cash that occurred in the years presented using the indirect method.

 

Page 12


 
 

(A free translation of the original in Portuguese)

 

Telefônica Brasil S. A.

NOTES TO THE QUARTERLY FINANCIAL STATEMENTS

Three and nine-month periods ended September 30, 2019

(In thousands of Reais, unless otherwise stated)

                                           

The accounting standards adopted in Brazil require the presentation of the Statement of Value Added ("SVA"), individual and consolidated. IFRS does not require such presentation. As a result, under IFRS standards, the SVA is being presented as supplementary information, without prejudice to the overall quarterly financial statements.

 

These quarterly financial statements compare the quarters and nine-month periods ended September 30, 2019 and 2018, except for the balance sheets, that compare the positions as at September 30, 2019 and December 31, 2018.

 

The Board of Directors authorized the issue of these individual and consolidated financial statements at the meeting held on October 25, 2019.

 

c) Functional and reporting currency

 

The Company’s quarterly financial statements are presented in thousands of Brazilian Real/Reais (R$), unless otherwise stated.

 

The Company’s functional and reporting currency is the Brazilian Real. Transactions in foreign currency are translated into Brazilian Reais as follows: (i) assets, liabilities and shareholders' equity (excluding capital stock and capital reserves) are translated at the closing exchange rate on the balance sheet date; (ii) expenses and revenues are translated at the average exchange rate, except for specific transactions that are converted by the transaction date rate; and (iii) the capital stock and capital reserves are converted at the transaction date rate.

 

Gains and losses from the conversion of investments abroad are recognized in the statement of comprehensive income. Gains and losses from the translation of monetary assets and liabilities between the exchange rate prevailing at the date of the transaction and the year-end closing (except for the conversion of investments abroad) are recognized in the statement of income.

 

d) Basis of consolidation

 

At September 30, 2019 and December 31, 2018, the Company holds direct equity interests in subsidiaries and joint ventures. Selected information on the Company's investees is as follows:

 

Investees

 

Type of investment

 

Equity interests

 

Country (Headquarters)

 

Core activity

Terra Networks Brasil S.A. ("Terra Networks")

 

Subsidiary

 

100.00%

 

Brazil

 

Telecommunications

Telefônica Transportes e Logística Ltda ("TGLog")

 

Subsidiary

 

99.99%

 

Brazil

 

Transports and logistics

POP Internet Ltda ("POP")

 

Subsidiary

 

99.99%

 

Brazil

 

Internet

Aliança Atlântica Holding B.V. ("Aliança")

 

Joint venture

 

50.00%

 

Brazil

 

Telecommunications sector holdings

Companhia AIX de Participações ("AIX")

 

Joint venture

 

50.00%

 

Holland

 

Operation of underground telecommunications networks

Companhia ACT de Participações ("ACT")

 

Joint venture

 

50.00%

 

Brazil

 

Technical assistance in telecommunication networks

 

 

The information on the subsidiaries and joint ventures is consistent with the detailed description in Note 1.d) Basis of consolidation in the financial statements for the year ended December 31, 2018.

 

e) Segment reporting

 

Business segments are defined as components of a company for which separate financial information is available and are regularly assessed by the operational decision-making professional in considering how to allocate funds to an individual segment and in the assessment of segment performance.  Considering that: (i) all officers’ and managers' decisions are based on consolidated reports; (ii) the Company and its subsidiaries’ mission is to provide their customers with quality telecommunications services; and (iii) all decisions related to strategic planning, finance, purchases, short- and long-term investments are made on a consolidated basis, the Company and its subsidiaries operate in a single operating segment, namely the provision of telecommunications services.

 

 

Page 13


 
 

(A free translation of the original in Portuguese)

 

Telefônica Brasil S. A.

NOTES TO THE QUARTERLY FINANCIAL STATEMENTS

Three and nine-month periods ended September 30, 2019

(In thousands of Reais, unless otherwise stated)

                                           

f)  Significant accounting practices

 

The information in the notes to the financial statements that did not significantly changes, or present irrelevant disclosures as compared to December 31, 2018 has not been repeated in its entirety in these quarterly financial statements.

 

The accounting policies adopted in the preparation of the quarterly financial statements in the nine-month period ended September 30, 2019 are consistent with those used in the preparation of the consolidated annual financial statements for the year ended December 31, 2018, except for the changes required by the new pronouncements, interpretations and amendments approved for the IASB which came into effect as of January 1, 2019, as follows: 

 

Standards and amendments

Improvements to IFRS Standards

 

2015-2017 Cycle

 

IFRS 16

 

Leases

 

IFRIC23

 

Uncertainty over Income Tax Treatments

 

Amendments to IFRS 9

 

Prepayment Features with Negative Compensation

 

Amendments to IAS 28

 

Long-term Interest in associates and Joint Ventures

 

Amendments to IFRS 10 and IAS 28

 

Sale or Contribuition of Assets between na Investidor and its Associate or Joint Venture

 

Other than reported below, the adoption of these standards, amendments and interpretations did not have a significant impact on the consolidated quarterly financial statements in the initial period of adoption. IFRS 16 - Leases has had a significant impact on the consolidated quarterly financial statements upon adoption and prospectively.

The Company does not anticipate the early adoption of any pronouncement, interpretation or amendment that has been issued, before application is mandatory.

 

IFRS 16 Leases

IFRS 16 requires lessees to recognize assets and liabilities arising from all leases (except for short-term leases and leases of low-value assets) in the statement of financial position.

The Company is a lessee under a significant number of leases for various assets, such as towers and the respective land where they are located, circuits, offices, stores and commercial real estate.

The Company concluded its assessment of the impact of this new standard for such contracts. This analysis included an estimate of the lease term, based on the non-cancellable period and the periods covered by options to extend the lease when exercise is at the sole discretion of the Company and where such exercise is reasonably certain. This depends, to a large extent, on the specific facts and circumstances applicable to the main class of assets in the telecom industry (technology, regulation, competition, business model, among others).  The Company adopted assumptions to calculate the discount rate, which was based on the incremental borrowing rate of interest over the estimated term. The Company has not separately recognized non-lease components from lease components for those classes of assets in which non-lease components are not material with respect to the total value of the lease.

 

Page 14


 
 

(A free translation of the original in Portuguese)

 

Telefônica Brasil S. A.

NOTES TO THE QUARTERLY FINANCIAL STATEMENTS

Three and nine-month periods ended September 30, 2019

(In thousands of Reais, unless otherwise stated)

                                           

The standard allows for two transition methods: retrospectively for all periods presented, or a modified retrospective approach, where the cumulative effect of adoption is recognized at the date of initial application. The Company has adopted the modified retrospective approach as a practical expedient that allows it to avoid having to re-evaluate whether a contract is or contains a lease on the date of the initial adoption of IFRS 16. It will directly apply the new requirements to all contracts that, under the current standard, have been identified as leasing contracts. Certain assumptions are permitted to be adopted on the first application in connection with the right to use, asset measurement, discount rates, impairment, leases that terminate within 12 months from the date of first adoption, direct start-up costs, and contract term of leasing. 

Accordingly, the Company opted to adopt the following practical transition expedients to the new criteria: (i) use of a common discount rate for groups of contracts with similar characteristics in terms of term, contract object, currency and economic environment; (ii) non-requirement to adopt the new criteria for contracts that expire in 12 months from the date of the initial adoption; and (iii) exclusion of initial direct costs from the initial valuation of the rights-of-use assets on the date of the initial adoption.

Because of the number of contracts affected, as well as the high monetary value of future lease commitments, the adoption of IFRS 16 by the Company has had a significant impact on its financial information as of the date of its adoption (January 1, 2019), including recognition of the balance of the rights-of-use assets (Note 12) and their corresponding lease obligations (Note 19) for most of the contracts.

 

The following are the effects of the initial adoption of IFRS 16 on January 1, 2019: 

 

 

 

Consolidated

Nominal value payable

 

   9,999,696

Unrealized financial expenses

 

  (1,381,624)

Present value payable

 

   8,618,072

 

 

 

Current

 

   1,711,092

Non-current

 

   6,906,980

 

 

 

Initial adoption effects:

 

 

   Property, plant and equipment (Note 12)

 

   8,618,072

   Loans, financing, debentures and leases (Note 19)

 

   8,618,072

 

In addition, the amortization of rights-of-use assets and the recognition of interest costs over the lease obligation in the statement of income replaced the amounts recognized as lease expenses in accordance with the lease standards. The classification of lease payments in the statement of cash flows is also affected by the requirements of the new lease standard.

To facilitate the understanding and comparability of information, Note 32 presents a proforma analysis of the consolidated statement of income in the nine-month period ended September 30, 2019, excluding the effects of adopting IFRS 16.

 

g) Significant accounting judgments estimates and assumptions  

 

The preparation of the quarterly financial statements requires the use of certain critical accounting estimates and the exercise of judgment by the Company's management in applying its accounting policies. These estimates are based on experience, knowledge, information available at the end of the year, and other factors, including expectations of future events that are believed to be reasonable in the circumstances. Final transactions involving these estimates may result in values ​​that are different from those recorded in the quarterly financial statements due to the criteria inherent in the estimation process. The Company reviews its estimates at least annually.

 

 

 

Page 15


 
 

(A free translation of the original in Portuguese)

 

Telefônica Brasil S. A.

NOTES TO THE QUARTERLY FINANCIAL STATEMENTS

Three and nine-month periods ended September 30, 2019

(In thousands of Reais, unless otherwise stated)

                                           

The significant and relevant estimates and judgments applied by the Company in the preparation of these quarterly financial statements are presented in the following notes: trade accounts receivable (Note 4); income and social contribution taxes (Note 7); property, plant and equipment (Note 12); intangible assets (Note 13); provision and contingencies (Note 19); net operating income (Note 24); pension plans and other post-employment benefits (Note 30); and financial instruments and risk and capital management (Note 31), disclosed in the financial statements for the year ended December 31, 2018.

 

3)  CASH AND CASH EQUIVALENTS  

 

 

Company

 

Consolidated

 

09/30/19

 

12/31/18

 

09/30/19

 

12/31/18

Cash and banks

   151,433

 

   204,911

 

   151,799

 

   205,598

Short-term investments

   4,226,161

 

   3,070,389

 

   4,396,457

 

   3,175,730

Total

   4,377,594

 

   3,275,300

 

   4,548,256

 

   3,381,328

 

Highly liquid short-term investments basically comprise Bank Deposit Certificates (“CDB”) and Repurchase Agreements with first tier rated financial institutions, indexed to the Interbank Deposit Certificate (“CDI”) rate, with original maturities of up to three months, and with immaterial risk of change in value. Income from these investments are recorded as financial income.

 

4) TRADE ACCOUNTS RECEIVABLE 

 

 

Company

 

Consolidated

 

09/30/19

 

12/31/18

 

09/30/19

 

12/31/18

Billed amounts

   7,213,208

 

   6,705,942

 

   7,214,870

 

   6,789,257

Unbilled amounts

   2,766,077

 

   2,395,503

 

   2,834,118

 

   2,454,810

Interconnection amounts

   818,652

 

   835,887

 

   818,652

 

   835,887

Amounts from related parties (Note 27)

   112,668

 

   219,637

 

   121,625

 

   148,814

Gross accounts receivable

10,910,605

 

10,156,969

 

10,989,265

 

10,228,768

Estimated impairment losses

  (1,575,683)

 

  (1,483,726)

 

  (1,608,267)

 

  (1,498,134)

Total

   9,334,922

 

   8,673,243

 

   9,380,998

 

   8,730,634

 

 

 

 

 

 

 

 

Current

   8,884,704

 

   8,246,991

 

   8,930,780

 

   8,304,382

Non-current

   450,218

 

   426,252

 

   450,218

 

   426,252

 

Consolidated balances of non-current trade accounts receivable include: 

 

 

 

Consolidated

 

 

09/30/19

 

12/31/18

Portion resale of goods to legal entities, receivable within 24 months

 

   189,114

 

   180,065

Portion of accounts receivable from the OI group - Bankruptcy process of companies

 

89,647

 

   119,365

Soluciona IT product (1)

 

   318,419

 

   293,531

Nominal amount receivable

 

   597,180

   592,961

Deferred financial income

 

   (54,321)

 

   (84,060)

Present value of accounts receivable

 

   542,859

 

   508,901

Estimated impairment losses

 

   (92,641)

 

   (82,649)

Net amount receivable

 

   450,218

 

   426,252

 

(1)  The maturity schedule of the nominal amounts and the present value of the Soluciona IT product is up to five years.

 

There are no unsecured residual values resulting in benefits to the lessor nor contingent payments recognized as revenue for the period.

 

Page 16


 
 

(A free translation of the original in Portuguese)

 

Telefônica Brasil S. A.

NOTES TO THE QUARTERLY FINANCIAL STATEMENTS

Three and nine-month periods ended September 30, 2019

(In thousands of Reais, unless otherwise stated)

                                           

The following are amounts receivable, net of estimated losses for impairment of accounts receivable, by maturity: 

 

 

Company

 

Consolidated

 

09/30/19

 

12/31/18

 

09/30/19

 

12/31/18

Falling due

   7,114,100

 

   6,435,875

 

   7,167,610

 

   6,485,154

Overdue – 1 to 30 days

   1,027,167

 

   1,087,363

 

   1,028,639

 

   1,096,639

Overdue – 31 to 60 days

   299,505

 

   304,864

 

   300,489

 

   305,019

Overdue – 61 to 90 days

   181,063

 

   201,197

 

   181,179

 

   200,401

Overdue – 91 to 120 days

   211,973

 

   223,730

 

   216,376

 

   220,221

Overdue – over 120 days

   501,114

 

   420,214

 

   486,705

 

   423,200

Total

   9,334,922

 

   8,673,243

 

   9,380,998

 

   8,730,634

 

At September 30, 2019 and December 31, 2018, no customer represented more than 10% of trade accounts receivable, net.

Changes in the estimated impairment losses for accounts receivable are as follows:

 

 

Company

 

Consolidated

Balance at 12/31/17

  (1,209,369)

 

  (1,433,471)

Initial adoption IFRS 9 on 01.01.18

  (332,127)

 

  (364,456)

Supplement to estimated losses, net of reversal (Note 24)

  (1,011,896)

 

  (1,168,936)

Write-off due to use

   1,301,240

 

   1,410,807

Balance at 09/30/18

  (1,252,152)

 

  (1,556,056)

Supplement to estimated losses, net of reversal

  (303,640)

 

  (364,724)

Incorporation (Note 1 c.2)

  (293,566)

 

-

Write-off due to use

   365,632

 

   422,646

Balance at 12/31/18

  (1,483,726)

 

  (1,498,134)

Supplement to estimated losses, net of reversal (Note 24)

  (1,243,560)

 

  (1,265,603)

Write-off due to use

   1,151,603

 

   1,167,362

Business combinations (Note 1 c.1)

-

 

   (11,892)

Balance at 09/30/19

  (1,575,683)

 

  (1,608,267)

 

The following table shows the changes in contractual assets arising from the initial adoption of IFRS 15 in the nine-month period ended September 30, 2019:

 

 

 

Contract assets, gross

 

Provision for losses

 

Contract assets, net

Balances as of 12.31.18

  195,733

 

(33,708)

 

  162,025

Additions

  370,081

 

-

 

  370,081

Write-offs, net

(344,737)

 

(4,185)

 

(348,922)

Balances as of 09.30.19

  221,077

 

(37,893)

 

  183,184

 

 

 

Page 17


 
 

(A free translation of the original in Portuguese)

 

Telefônica Brasil S. A.

NOTES TO THE QUARTERLY FINANCIAL STATEMENTS

Three and nine-month periods ended September 30, 2019

(In thousands of Reais, unless otherwise stated)

                                           

 

 

5)  INVENTORIES 

 

 

Company

 

Consolidated

 

09/30/19

 

12/31/18

 

09/30/19

 

12/31/18

Materials for resale (1)

   634,276

 

   413,843

 

   638,307

 

   413,843

Materials for consumption

55,610

 

60,566

 

56,686

 

61,819

Other inventories

   4,513

 

30,013

 

   4,751

 

30,013

Gross inventories

   694,399

 

   504,422

 

   699,744

 

   505,675

Estimated losses from impairment or obsolescence (2)

   (29,602)

 

   (43,622)

 

   (29,665)

 

   (43,622)

Total

   664,797

 

   460,800

 

   670,079

 

   462,053

 

(1)  Includes, among others, mobile phones, simcards (chip) and IT equipment (Soluciona IT product).

 

(2)  Additions and reversals of estimated impairment losses and inventory obsolescence are included in cost of goods sold (Note 24).

 

6)   PREPAID EXPENSES  

 

 

Company

 

Consolidated

 

09/30/19

 

12/31/18

 

09/30/19

 

12/31/18

Fistel Fee (1)

   269,514

 

-

 

   269,514

 

-

Advertising and publicity

91,141

 

   252,900

 

91,141

 

   252,900

Insurance

32,776

 

24,790

 

32,898

 

24,867

Rental

44,157

 

32,792

 

44,172

 

32,792

Software and networks maintenance

57,798

 

17,472

 

57,934

 

17,485

Incremental costs - IFRS 15

   314,870

 

   255,391

 

   314,870

 

   255,391

Financial charges

31,181

 

43,853

 

31,181

 

43,853

Personnel

28,044

 

33,679

 

28,444

 

33,970

Taxes and other

40,903

 

54,593

 

41,919

 

54,717

Total

   910,384

 

   715,470

 

   912,073

 

   715,975

 

 

 

 

 

 

 

 

Current

   767,591

 

   581,261

 

   769,267

 

   581,743

Non-current

   142,793

 

   134,209

 

   142,806

 

   134,232

 

(1)    Refers to the remaining portion of the Inspection and Operation Fee amounts paid in March and April of 2019, which will be amortized through to end of 2019.

 

7)   INCOME AND SOCIAL CONTRIBUTION TAXES

 

a) Income and Social Contribution taxes recoverable 

 

 

Company

 

Consolidated

 

09/30/19

 

12/31/18

 

09/30/19

 

12/31/18

Income taxes

   375,384

 

   245,403

 

   376,692

 

   245,883

Social contribution taxes

30,247

 

28,624

 

30,598

 

28,706

Total

   405,631

 

   274,027

 

   407,290

 

   274,589

 

 

Page 18


 
 

(A free translation of the original in Portuguese)

 

Telefônica Brasil S. A.

NOTES TO THE QUARTERLY FINANCIAL STATEMENTS

Three and nine-month periods ended September 30, 2019

(In thousands of Reais, unless otherwise stated)

                                           

 

 

b) Income and Social Contribution taxes payable 

 

 

 

Consolidated

 

 

09/30/19

 

12/31/18

Income taxes

 

               7,961

 

               8,756

Social contribution taxes

 

               2,957

 

               3,253

Total

 

             10,918

 

             12,009

 

c) Deferred taxes

 

Significant components of deferred income and social contribution taxes are as follows:  

 

Company

 

Balances at 12/31/17

 

Income statement

 

Comprehensive income

 

Effects of the initial adoption of IFRS 9 and IFRS 15

 

Balances at 09/30/18

 

Income statement

 

Comprehensive income

 

Incorporation (Note 1 c.2)

 

Balances at 12/31/18

 

Income statement

 

Comprehensive income

 

Balances at 09/30/19

Deferred tax assets  (liabilities)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income and social contribution taxes on tax losses (1)

588,750

 

436,544

 

-

 

  -

 

1,025,294

 

248,190

 

-

 

  -

 

1,273,484

 

340,814

 

-

 

1,614,298

Income and social contribution taxes on temporary differences (2)

 (1,298,075)

 

(1,937,372)

 

  809

 

59,958

 

(3,174,680)

 

  (255,461)

 

 31,045

 

142,660

 

(3,256,436)

 

(1,084,465)

 

  161

 

(4,340,740)

Provisions for legal, labor, tax civil and regulatory contingencies

2,255,087

 

  (327,562)

 

-

 

  -

 

1,927,525

 

(8,531)

 

-

 

  7,688

 

1,926,682

 

  (100,982)

 

-

 

1,825,700

Trade accounts payable and other provisions

588,294

 

(92,674)

 

-

 

  -

 

495,620

 

(16,422)

 

-

 

62,695

 

541,893

 

  6,224

 

-

 

548,117

Customer portfolio and trademarks

254,418

 

(52,360)

 

-

 

  -

 

202,058

 

(17,455)

 

-

 

  -

 

184,603

 

(52,361)

 

-

 

132,242

Estimated losses on impairment of accounts receivable

411,187

 

(98,378)

 

-

 

112,923

 

425,732

 

(25,629)

 

-

 

37,576

 

437,679

 

27,023

 

-

 

464,702

Estimated losses from modems and other P&E items

199,434

 

(5,537)

 

-

 

  -

 

193,897

 

(17,795)

 

-

 

  28

 

176,130

 

  7,078

 

-

 

183,208

Pension plans and other post-employment benefits

174,381

 

14,440

 

-

 

  -

 

188,821

 

  3,292

 

  30,810

 

  3,157

 

226,080

 

14,769

 

-

 

240,849

Profit sharing

100,643

 

(29,449)

 

-

 

  -

 

71,194

 

48,817

 

-

 

  8,744

 

128,755

 

(50,247)

 

-

 

78,508

Licenses

 (1,636,886)

 

  (162,246)

 

-

 

  -

 

(1,799,132)

 

(54,082)

 

-

 

  -

 

(1,853,214)

 

  (162,247)

 

-

 

(2,015,461)

Goodwill (Spanish and Navytree, Vivo Part. and GVT Part.)

 (3,598,172)

 

  (717,261)

 

-

 

  -

 

(4,315,433)

 

  (285,507)

 

-

 

  -

 

(4,600,940)

 

  (752,076)

 

-

 

(5,353,016)

Property, plant and equipment of small value

  -

 

  (461,765)

 

-

 

  -

 

  (461,765)

 

66,159

 

-

 

  -

 

  (395,606)

 

33,277

 

-

 

  (362,329)

Technological Innovation Law

(97,533)

 

40,558

 

-

 

  -

 

(56,975)

 

  6,848

 

-

 

  -

 

(50,127)

 

19,359

 

-

 

(30,768)

On other temporary differences (3)

51,072

 

(45,138)

 

  809

 

(52,965)

 

(46,222)

 

44,844

 

  235

 

22,772

 

21,629

 

(74,282)

 

  161

 

(52,492)

Total deferred tax assets (liabilities), non-current

  (709,325)

 

(1,500,828)

 

  809

 

59,958

 

(2,149,386)

 

(7,271)

 

  31,045

 

142,660

 

(1,982,952)

 

  (743,651)

 

  161

 

(2,726,442)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deferred tax assets

4,916,768

 

 

 

 

 

 

 

4,924,634

 

 

 

 

 

 

 

5,339,788

 

 

 

 

 

5,522,833

Deferred tax liabilities

 (5,626,093)

 

 

 

 

 

 

 

(7,074,020)

 

 

 

 

 

 

 

(7,322,740)

 

 

 

 

 

(8,249,275)

Deferred tax assets  (liabilities), net

  (709,325)

 

 

 

 

 

 

 

(2,149,386)

 

 

 

 

 

 

 

(1,982,952)

 

 

 

 

 

(2,726,442)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Represented in the balance sheet as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deferred tax assets

  -

 

 

 

 

 

 

 

  -

 

 

 

 

 

 

 

  -

 

 

 

 

 

  -

Deferred tax liabilities

  (709,325)

 

 

 

 

 

 

 

(2,149,386)

 

 

 

 

 

 

 

(1,982,952)

 

 

 

 

 

(2,726,442)

 

 

Page 19


 
 

(A free translation of the original in Portuguese)

 

Telefônica Brasil S. A.

NOTES TO THE QUARTERLY FINANCIAL STATEMENTS

Three and nine-month periods ended September 30, 2019

(In thousands of Reais, unless otherwise stated)

                                           

 

Consolidated

 

Balances at 12/31/17

 

Income statement

 

Comprehensive income

 

Effects of the initial adoption of IFRS 9 and IFRS 15

 

Balances at 09/30/18

 

Income statement

 

Comprehensive income

 

Balances at 12/31/18

 

Income statement

 

Comprehensive income

 

Balances at 09/30/19

Deferred tax assets  (liabilities)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income and social contribution taxes on tax losses (1)

   793,933

 

   404,177

 

-

 

  -

 

   1,198,110

 

   230,366

 

-

 

   1,428,476

 

   304,176

 

-

 

   1,732,652

Income and social contribution taxes on temporary differences (2)

(1,131,850)

 

(1,898,827)

 

  809

 

   70,012

 

(2,959,856)

 

  (252,463)

 

  30,988

 

(3,181,331)

 

(1,091,209)

 

  161

 

(4,272,379)

Provisions for legal, labor, tax civil and regulatory contingencies

   2,298,735

 

  (322,609)

 

-

 

  -

 

   1,976,126

 

(10,426)

 

-

 

   1,965,700

 

(99,178)

 

-

 

   1,866,522

Trade accounts payable and other provisions

   651,417

 

(70,123)

 

-

 

  -

 

   581,294

 

   (9,560)

 

-

 

   571,734

 

   (7,258)

 

-

 

   564,476

Customer portfolio and trademarks

   254,418

 

(52,361)

 

-

 

  -

 

   202,057

 

(17,454)

 

-

 

   184,603

 

(52,361)

 

-

 

   132,242

Estimated losses on impairment of accounts receivable

   434,960

 

(87,592)

 

-

 

   122,977

 

   470,345

 

(28,069)

 

-

 

   442,276

 

   29,217

 

-

 

   471,493

Estimated losses from modems and other P&E items

   200,941

 

   (7,014)

 

-

 

  -

 

   193,927

 

(17,797)

 

-

 

   176,130

 

  7,078

 

-

 

   183,208

Pension plans and other post-employment benefits

   174,534

 

   17,529

 

-

 

  -

 

   192,063

 

  3,405

 

  30,753

 

   226,221

 

   14,806

 

-

 

   241,027

Profit sharing

   110,046

 

(30,858)

 

-

 

  -

 

   79,188

 

   50,501

 

-

 

   129,689

 

(50,522)

 

-

 

   79,167

Licenses

(1,636,886)

 

  (162,246)

 

-

 

  -

 

(1,799,132)

 

(54,082)

 

-

 

(1,853,214)

 

  (162,247)

 

-

 

(2,015,461)

Goodwill (Spanish and Navytree, Vivo Part. and GVT Part.)

(3,598,172)

 

  (717,261)

 

-

 

  -

 

(4,315,433)

 

  (285,507)

 

-

 

(4,600,940)

 

  (752,076)

 

-

 

(5,353,016)

Property, plant and equipment of small value

 -

 

  (461,765)

 

-

 

  -

 

  (461,765)

 

   66,159

 

-

 

  (395,606)

 

   33,277

 

-

 

  (362,329)

Technological Innovation Law

(97,533)

 

   40,558

 

-

 

  -

 

(56,975)

 

  6,848

 

-

 

(50,127)

 

   19,359

 

-

 

(30,768)

On other temporary differences (3)

   75,690

 

(45,085)

 

  809

 

(52,965)

 

(21,551)

 

   43,519

 

  235

 

   22,203

 

(71,304)

 

  161

 

(48,940)

Total deferred tax assets (liabilities), non-current

  (337,917)

 

(1,494,650)

 

  809

 

   70,012

 

(1,761,746)

 

(22,097)

 

  30,988

 

(1,752,855)

 

  (787,033)

 

  161

 

(2,539,727)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deferred tax assets

   5,288,176

 

 

 

 

 

 

 

   5,312,274

 

 

 

 

 

   5,569,885

 

 

 

 

 

   5,709,548

Deferred tax liabilities

(5,626,093)

 

 

 

 

 

 

 

(7,074,020)

 

 

 

 

 

(7,322,740)

 

 

 

 

 

(8,249,275)

Deferred tax assets  (liabilities), net

  (337,917)

 

 

 

 

 

 

 

(1,761,746)

 

 

 

 

 

(1,752,855)

 

 

 

 

 

(2,539,727)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Represented in the balance sheet as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   Deferred tax assets

   371,408

 

 

 

 

 

 

 

  387,640

 

 

 

 

 

   230,097

 

 

 

 

 

   186,715

   Deferred tax liabilities

  (709,325)

 

 

 

 

 

 

 

(2,149,386)

 

 

 

 

 

(1,982,952)

 

 

 

 

 

(2,726,442)

 

(1)  Under Brazilian tax legislation these may be offset up to 30% of the annual taxable income but otherwise have no expiry date.

 

(2)  Amounts that will be realized upon payment of provision, occurrence of impairment losses for trade accounts receivable, or realization of inventories, as well as upon reversal of other provision.

 

(3)  Deferred taxes from other temporary differences, such as deferred income, renewal of licenses, and subsidy on the sale of mobile phones, among others.

 

At September 30, 2019 and December 31, 2018, deferred tax credits (income and social contribution tax losses) were not recognized in the subsidiaries' (Innoweb, TGLog and TIS) accounting records, in the amount of R$51,895 (R$12,649 at December 31, 2018), as it is not probable that future taxable profits will be sufficient for offset for these subsidiaries to benefit from such tax credits.

 

d) Reconciliation of income tax and social contribution expense

 

The Company and its subsidiaries recognize income and social contribution taxes on a monthly basis, on an accrual basis, and pay taxes based on estimates, as per the tax auxiliary trial balance. Taxes calculated on profits up to the balance sheet date are recorded in liabilities or assets, as applicable.

 

Reconciliation of the reported tax expense and the amounts is calculated by applying the statutory tax rate of 34% (income tax of 25% and social contribution tax of 9%) in the table below for the nine-month periods ended September 30, 2019 and 2018.

 

Page 20


 
 

(A free translation of the original in Portuguese)

 

Telefônica Brasil S. A.

NOTES TO THE QUARTERLY FINANCIAL STATEMENTS

Three and nine-month periods ended September 30, 2019

(In thousands of Reais, unless otherwise stated)

                                           

 

Company

 

Three-month periods ended

 

Nine-month periods ended

 

09.30.19

 

09.30.18

 

09.30.19

 

09.30.18

Income before taxes

1,487,823

 

3,263,789

 

4,471,592

 

8,942,617

Income and social contribution tax expenses, at the tax rate of 34%

   (505,860)

 

   (1,109,688)

 

   (1,520,341)

 

   (3,040,490)

Permanent differences

 

 

 

 

 

 

 

Equity pickup, net of effects from interest on equity received  (Note 11)

  27,363

 

  80,784

 

  84,905

 

470,703

Unclaimed  interest on equity

   (7,882)

 

 -

 

   (7,882)

 

(14,426)

Non-deductible expenses, gifts, incentives

(18,209)

 

(10,565)

 

(46,527)

 

(31,972)

Tax benefit related to interest on equity allocated

  -

 

952,000

 

760,920

 

1,088,000

Other (additions) exclusions

(18,122)

 

944

 

(15,907)

 

  27,148

Total

   (522,710)

 

(86,525)

 

   (744,832)

 

   (1,501,037)

 

 

 

 

 

 

 

 

Effective rate

35.1%

 

2.7%

 

16.7%

 

16.8%

Current income and social contribution taxes

4

 

  32,978

 

   (1,181)

 

   (209)

Deferred income and social contribution taxes

   (522,714)

 

   (119,503)

 

   (743,651)

 

   (1,500,828)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated

 

Three-month periods ended

 

Nine-month periods ended

 

09.30.19

 

09.30.18

 

09.30.19

 

09.30.18

Income before taxes

1,529,653

 

3,394,095

 

4,598,893

 

9,679,819

Income and social contribution tax expenses, at the tax rate of 34%

   (520,082)

 

   (1,153,992)

 

   (1,563,624)

 

   (3,291,138)

Permanent differences

 

 

 

 

 

 

 

Equity pickup, net of effects from interest on equity received  (Note 11)

   (263)

 

   (1,884)

 

   (243)

 

   (1,671)

Unclaimed  interest on equity

   (7,882)

 

  -

 

   (7,882)

 

(14,426)

Non-deductible expenses, gifts, incentives

(18,257)

 

(12,904)

 

(46,621)

 

(50,958)

Tax benefit related to interest on equity allocated

  -

 

952,000

 

760,920

 

1,088,000

Other (additions) exclusions

(18,056)

 

  (51)

 

(14,683)

 

  31,954

Total

   (564,540)

 

   (216,831)

 

   (872,133)

 

   (2,238,239)

 

 

 

 

 

 

 

 

Effective rate

36.9%

 

6.4%

 

19.0%

 

23.1%

Current income and social contribution taxes

(31,335)

 

(80,176)

 

(85,100)

 

   (743,589)

Deferred income and social contribution taxes

   (533,205)

 

   (136,655)

 

   (787,033)

 

   (1,494,650)

 

 

Page 21


 
 

(A free translation of the original in Portuguese)

 

Telefônica Brasil S. A.

NOTES TO THE QUARTERLY FINANCIAL STATEMENTS

Three and nine-month periods ended September 30, 2019

(In thousands of Reais, unless otherwise stated)

                                           

8) TAXES, CHARGES AND CONTRIBUTIONS RECOVERABLE

 

Company

 

Consolidated

 

09/30/19

 

12/31/18

 

09/30/19

 

12/31/18

State VAT (ICMS) (1)

   2,741,512

 

   2,548,998

 

   2,741,613

 

   2,549,006

Withholding taxes and contributions (2)

   112,472

 

   128,808

 

   114,826

 

   129,741

PIS and COFINS (3)

   2,769,756

 

   4,999,706

 

   2,771,005

 

   5,000,677

Fistel, INSS, ISS and other taxes

34,721

 

   216,709

 

35,350

 

   217,056

Total

   5,658,461

 

   7,894,221

 

   5,662,794

 

   7,896,480

 

 

 

 

 

 

 

 

Current

   4,809,581

 

   4,671,959

 

   4,813,911

 

   4,674,218

Non-current

   848,880

 

   3,222,262

 

   848,883

 

   3,222,262

 

(1)  Includes ICMS credits from the acquisition of property and equipment, available to offset in 48 months; requests for refund of ICMS paid on invoices that were subsequently cancelled; for the rendering of services; tax substitution; and tax rate difference; among others. Non-current consolidated amounts include credits arising from the acquisition of property and equipment of R$544,559 and R$509,920 on September 30, 2019 and December 31, 2018, respectively.

 

(2)  Withholding income tax (“IRRF”) credits on short-term investments, interest on equity and others, which are used as deduction in operations for the period and social contribution tax withheld at source on services provided to public agencies.

 

(3)  The balances of September 30, 2019 and December 31, 2018 include the tax credits of PIS and COFINS plus interest accruals based on the SELIC, in the amounts of R$2,562,583 and R$4,915,139, respectively, arising from the final judicial processes on May 17, 2018 and August 28, 2018, in favor of the Company and its subsidiary, which recognized the right to deduct ICMS from the basis of the calculation of PIS and COFINS contributions for the periods from September 2003 to June 2017 and July 2004 to July 2013, respectively. As at September 30, 2019 the remaining current balance was R$2,562,583. As at December 31, 2018, current and non-current balances were R$2,520,990 and R$2,394,149, respectively.

 

The Internal Revenue Service filed a review, pursuant to Law 13,670/18, with the purpose of approving the PIS and COFINS credits resulting from the dispute that dealt with the exclusion of ICMS from the bases of these contributions. The Company has made every effort, including judicial measures, to meet in a timely manner the requests of this audit procedure and thus continue offsetting its tax credits.

 

The Company has three other lawsuits of the same nature in progress (including lawsuits of companies that have already been merged - GVT and Telemig), treated as contingent assets, which cover several periods between December 2001 and June 2017, whose ranges of values we estimate between R$1,700 million to R$2,200 million.

 

9)   JUDICIAL DEPOSITS AND GARNISHMENTS

 

When granted suspension of tax liability, judicial deposits are required to be made by law to secure the continuance of the claims under discussion.

 

Judicial deposits are recorded at historical cost-plus legal indexation/interest accruals.

Page 22


 
 

(A free translation of the original in Portuguese)

 

Telefônica Brasil S. A.

NOTES TO THE QUARTERLY FINANCIAL STATEMENTS

Three and nine-month periods ended September 30, 2019

(In thousands of Reais, unless otherwise stated)

 

 

Company

 

Consolidated

 

09/30/19

 

12/31/18

 

09/30/19

 

12/31/18

Judicial deposits

 

 

 

 

 

 

 

   Tax

   1,842,569

 

   1,790,940

 

   1,986,889

 

   1,929,594

   Labor

   336,077

 

   512,635

 

   344,999

 

   522,201

   Civil

   1,065,823

 

   1,163,530

 

   1,068,717

 

   1,164,835

   Regulatory

   258,722

 

   208,447

 

   258,722

 

   208,447

Total

   3,503,191

 

   3,675,552

 

   3,659,327

 

   3,825,077

Garnishments

53,753

 

84,134

 

55,089

 

84,937

Total

   3,556,944

 

   3,759,686

 

   3,714,416

 

   3,910,014

 

 

 

 

 

 

 

 

Current

   298,665

 

   312,820

 

   299,662

 

   313,007

Non-current

   3,258,279

 

   3,446,866

 

   3,414,754

 

   3,597,007

 

The table below presents the classified balances as at September 30, 2019 and December 31, 2018 of the tax judicial deposits (classified by tax). 

 

 

Consolidated

 

09/30/19

 

12/31/18

Telecommunications Inspection Fund (FISTEL)

45,855

 

44,771

Corporate Income Tax (IRPJ) and Social Contribution Tax (CSLL)

   570,738

 

   551,937

Universal Telecommunication Services Fund (FUST)

   514,993

 

   503,246

Social Contribution Tax for Intervention in the Economic Order (CIDE)

   284,576

 

   278,685

State Value-Added Tax (ICMS)

   260,440

 

   239,220

Social Security, work accident insurance (SAT) and funds to third parties (INSS)

   139,411

 

   141,759

Withholding Income Tax (IRRF)

56,759

 

55,425

Contribution tax on gross revenue for Social Integration Program (PIS) and for Social Security Financing (COFINS)

34,770

 

39,672

Other taxes, charges and contributions

79,347

 

74,879

Total

   1,986,889

 

   1,929,594

 

10)  OTHER ASSETS  

 

 

Company

 

Consolidated

 

09/30/19

 

12/31/18

 

09/30/19

 

12/31/18

Advances to employees and suppliers

   109,683

 

81,046

 

   112,842

 

83,094

Related-party receivables (Note 27)

52,490

 

   110,923

 

58,390

 

   120,776

Receivables from suppliers

   147,492

 

   114,175

 

   147,492

 

   114,175

Surplus from post-employment benefit plans (Note 29)

11,002

 

10,920

 

11,083

 

10,997

Other amounts receivable (1)

30,201

 

26,791

 

26,014

 

20,670

Total

   350,868

 

   343,855

 

   355,821

 

   349,712

 

 

 

 

 

 

 

 

Current

   264,695

 

   297,366

 

   269,602

 

   302,607

Non-current

86,173

 

46,489

 

86,219

 

47,105

 

 

(1)  As of September 30, 2019, includes a receivable of $10,288 from a subletting agreement in the Curitiba Data Center, for a period of 22 years. There are no unsecured residual amounts that result in lessor benefits and no contingent payments recognized as income during the period.

 

Selected information on subletting agreements at September 30, 2019;

 

Page 23


 
 

(A free translation of the original in Portuguese)

 

Telefônica Brasil S. A.

NOTES TO THE QUARTERLY FINANCIAL STATEMENTS

Three and nine-month periods ended September 30, 2019

(In thousands of Reais, unless otherwise stated)

 

 

 

Company / Consolidated

Nominal value receivable

 

17,160

Deferred financial income

 

  (6,872)

Present value of accounts receivable

 

10,288

 

 

 

Current

 

   755

Non-current

 

   9,533

 
Schedule of amounts receivable from the subletting agreement, segregated into nominal values and present value:

 

 

 

Company / Consolidated

Year

 

Nominal value receivable

 

Present value receivable

1 to 12 months

 

   780

 

   755

13 to 24 months

 

   780

 

   721

25 to 36 months

 

   780

 

   685

37 to 48 months

 

   780

 

   651

49 to 60 months

 

   780

 

   619

From 61 months

 

13,260

 

   6,857

Total

 

17,160

 

10,288

 

11) INVESTMENTS

 

a)   Information on investees

 

The information on subsidiaries and jointly controlled entities is consistent with Note 11) Investments in the financial statements for the year ended December 31, 2018.

 

Selected financial data of the investees in which the Company holds an interest and corporate changes are described in Note 1 d. 

 

 

09/30/19

 

12/31/18

 

Subsidiaries

 

Joint ventures

 

Subsidiaries

 

Joint ventures

 

Terra Networks Consolidated

 

TGLog

 

POP Consolidated

 

Aliança / AIX / ACT

 

Terra Networks

 

TGLog

 

POP Consolidated

 

Aliança / AIX / ACT

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity interest

100.00%

 

99.99%

 

100.00%

 

50.00%

 

100.00%

 

99.99%

 

100.00%

 

50.00%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Summary of balance sheets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current assets

  365,917

 

38,608

 

69,142

 

  220,899

 

  327,150

 

42,809

 

53,875

 

  213,481

Non-current assets

  300,668

 

   6,410

 

55,305

 

10,869

 

  330,735

 

   5,045

 

52,255

 

12,327

Total assets

  666,585

 

45,018

 

  124,447

 

  231,768

 

  657,885

 

47,854

 

  106,130

 

  225,808

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities

  182,823

 

24,546

 

16,845

 

   9,469

 

  220,428

 

26,915

 

50,302

 

   7,103

Non-current liabilities

  124,829

 

11,054

 

45,010

 

16,713

 

  120,546

 

11,227

 

-

 

16,101

Equity

  358,933

 

   9,418

 

62,592

 

  205,586

 

  316,911

 

   9,712

 

55,828

 

 202,604

Total liabilities and equity

  666,585

 

45,018

 

  124,447

 

  231,768

 

  657,885

 

47,854

 

  106,130

 

  225,808

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment Book value

  358,933

 

   9,418

 

62,592

 

  102,793

 

  316,911

 

   9,712

 

55,828

 

 101,302

 

 

Page 24


 
 

(A free translation of the original in Portuguese)

 

Telefônica Brasil S. A.

NOTES TO THE QUARTERLY FINANCIAL STATEMENTS

Three and nine-month periods ended September 30, 2019

(In thousands of Reais, unless otherwise stated)

 

 

Nine-month periods ended

 

09/30/19

 

09/30/18

 

Subsidiaries

Joint ventures

 

Subsidiaries

 

Joint ventures

Summary Statements of Income:

Terra Networks Consolidated

 

TGLog

 

POP Consolidated

 

Aliança / AIX / ACT

 

TData Consolidated

 

POP Consolidated

 

Aliança / AIX / ACT

Net operating income

  584,877

 

44,728

 

20,481

 

33,604

 

  4,846,284

 

23,243

 

34,237

Operating costs and expenses

(221,823)

 

   (44,450)

 

   (12,339)

 

  (35,704)

 

(2,821,107)

 

  (5,951)

 

   (44,625)

Financial income (expenses), net

   4,613

 

(572)

 

   2,222

 

  672

 

83,377

 

  690

 

  846

Income and social contribution taxes

(123,701)

 

-

 

  (3,600)

 

-

 

(730,787)

 

  (6,416)

 

(286)

Net income (loss) for the period

  243,966

 

(294)

 

   6,764

 

  (1,428)

 

  1,377,767

 

11,566

 

  (9,828)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity pickup, according to interest held

  243,966

 

(294)

 

   6,764

 

(714)

 

  1,377,767

 

11,566

 

  (4,914)

 

 

b)   Changes in investments   

 

 

Subsidiaries

 

Joint ventures

 

 

 

 

 

 

 

 

 

 

 

Terra Networks Consolidated

 

TGLog

 

   POP  Consolidated

 

TData Consolidated

 

Aliança / AIX / ACT

 

Goodwill (1)

 

   Other investments (2)

 

Total investments - Company

 

Eliminations

 

Total  investments - Consolidated

Balances at 12/31/17

  -

 

  -

 

   38,966

 

   1,599,350

 

97,222

 

   212,058

 

  1,680

 

   1,949,276

 

(1,850,374)

 

   98,902

Equity pick-up

  -

 

 -

 

   11,566

 

   1,377,767

 

  (4,914)

 

  -

 

  -

 

   1,384,419

 

(1,389,333)

 

   (4,914)

Dividends

  -

 

  -

 

  -

 

(1,263,503)

 

   -

 

  -

 

  -

 

(1,263,503)

 

   1,263,503

 

  -

Initial adoption IFRS 9

  -

 

  -

 

   (96)

 

(22,156)

 

   -

 

  -

 

  -

 

(22,252)

 

   22,252

 

  -

Provision for losses on investments

  -

 

  -

 

  -

 

  -

 

   -

 

  -

 

(700)

 

(700)

 

  -

 

(700)

Other comprehensive  income

  -

 

  -

 

  -

 

   (23)

 

14,136

 

  -

 

(408)

 

   13,705

 

  23

 

   13,728

Balances at 09/30/18

  -

 

  -

 

   50,436

 

   1,691,435

 

  106,444

 

   212,058

 

  572

 

   2,060,945

 

(1,953,929)

 

   107,016

Equity pick-up

   (1,195)

 

  219

 

  5,392

 

   188,929

 

  (933)

 

  -

 

  -

 

   192,412

 

  (193,345)

 

(933)

Dividends and interest on equity

(51,785)

 

  -

 

 -

 

  -

 

   -

 

  -

 

  -

 

(51,785)

 

   51,785

 

  -

Incorporation (Note 1 c..2)

   369,778

 

   12,537

 

  -

 

(1,880,374)

 

   -

 

  (212,058)

 

  -

 

(1,710,117)

 

   1,498,059

 

  -

Equity transactions

  -

 

  -

 

  -

 

  10

 

   -

 

  -

 

  -

 

  10

 

   (10)

 

  -

Other comprehensive  income

  113

 

   (3,044)

 

  -

 

  -

 

  (4,209)

 

  -

 

(217)

 

   (7,357)

 

  2,931

 

   (4,426)

Balances at 12/31/18

   316,911

 

  9,712

 

   55,828

 

  -

 

  101,302

 

  -

 

  355

 

   484,108

 

  (594,509)

 

   101,657

Equity pick-up

   243,966

 

(294)

 

  6,764

 

 -

 

  (714)

 

  -

 

  -

 

   249,722

 

  (250,436)

 

(714)

Dividends

  (153,875)

 

  -

 

  -

 

 -

 

   -

 

  -

 

  -

 

  (153,875)

 

   153,875

 

  -

Equity transactions (Note 1 .c.1)

(48,135)

 

  -

 

 -

 

  -

 

   -

 

  -

 

  -

 

(48,135)

 

   48,135

 

  -

Other

  66

 

  -

 

  -

 

 -

 

   -

 

  -

 

  -

 

  66

 

   (66)

 

  -

Other comprehensive  income

  -

 

  -

 

  -

 

  -

 

   2,205

 

  -

 

  36

 

  2,241

 

  -

 

  2,241

Balances at 09/30/19

   358,933

 

  9,418

 

   62,592

 

  -

 

  102,793

 

  -

 

  391

 

   534,127

 

  (643,001)

 

   103,184

 

 

(1)  Goodwill from partial spin-off of “Spanish and Figueira”, which was absorbed by the Company upon a downstream merger with Telefônica Data Brasil Holding S.A. (TDBH) in 2006. Following the merger of TData (Note 1.c), this amount was reclassified to the Intangibles.

 

(2)  Other investments (tax incentives and interest held in companies) are measured at fair value.

 

 

 

Page 25


 
 

(A free translation of the original in Portuguese)

 

Telefônica Brasil S. A.

NOTES TO THE QUARTERLY FINANCIAL STATEMENTS

Three and nine-month periods ended September 30, 2019

(In thousands of Reais, unless otherwise stated)

                                           

 

12)  PROPERTY, PLANT AND EQUIPMENT

 

a) Breakdown, changes and depreciation rates

 

 

Company

 

   Switching and transmission equipment

 

Terminal equipment / modems

 

   Infrastructure

 

   Land

 

   Other P&E

 

Estimated losses (1)

 

   Assets and facilities under construction

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances and changes:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   Balance at 12/31/17

   22,808,973

 

  2,719,681

 

  3,877,682

 

   314,353

 

   765,682

 

(227,862)

 

  2,854,023

 

   33,112,532

   Additions

  10,092

 

   110,362

 

  58,795

 

  550

 

   100,931

 

   (8,565)

 

  4,863,234

 

  5,135,399

   Write-offs, net

   (16,941)

 

   (236)

 

   (7,385)

 

-

 

   (1,639)

 

  18,352

 

   (21,582)

 

   (29,431)

   Net transfers

  3,866,505

 

   402,320

 

   293,151

 

-

 

  92,639

 

-

 

(4,703,145)

 

   (48,530)

   Depreciation (Note 24)

(2,426,082)

 

(1,047,136)

 

(430,341)

 

-

 

(229,131)

 

-

 

-

 

(4,132,690)

   Balance at 09/30/18

   24,242,547

 

  2,184,991

 

  3,791,902

 

   314,903

 

   728,482

 

(218,075)

 

  2,992,530

 

   34,037,280

   Additions

  578

 

  17,968

 

  42,157

 

-

 

  65,501

 

   (410)

 

  1,682,518

 

  1,808,312

   Write-offs, net

   (28,782)

 

   (1,485)

 

   (571)

 

  (71)

 

   (879)

 

  61,676

 

  (39,848)

 

   (9,960)

   Net transfers

  1,514,239

 

   696,060

 

   155,478

 

-

 

  32,934

 

-

 

(2,536,416)

 

(137,705)

   Incorporation (Note 1 c.2)

71

 

5,134

 

3,490

 

-

 

  73,130

 

  (83)

 

  13,305

 

  95,047

   Depreciation

(1,060,444)

 

(331,649)

 

(225,472)

 

-

 

   (66,270)

 

-

 

-

 

(1,683,835)

   Balance at 12/31/18

   24,668,209

 

  2,571,019

 

  3,766,984

 

   314,832

 

   832,898

 

(156,892)

 

  2,112,089

 

   34,109,139

   Initial adoption IFRS 16

  91,836

 

-

 

  8,525,095

 

-

 

-

 

-

 

-

 

  8,616,931

   Additions

  71,276

 

   112,472

 

  1,454,523

 

-

 

   156,265

 

   (12,227)

 

  4,742,967

 

  6,525,276

   Write-offs, net (2)

   (7,954)

 

   (198)

 

   (21,747)

 

   (2,650)

 

   (1,032)

 

2,820

 

   (11,750)

 

   (42,511)

   Net transfers

  3,168,698

 

   846,995

 

   385,445

 

-

 

  85,777

 

-

 

(4,552,336)

 

   (65,421)

   Transfers of goods destined for sale (3)

   (306)

 

-

 

(172,480)

 

   (30,585)

 

   (67,143)

 

-

 

-

 

(270,514)

   Subletting (4)

-

 

-

 

   (10,310)

 

-

 

-

 

-

 

-

 

   (10,310)

   Depreciation (Note 24)

(2,702,523)

 

(1,056,077)

 

(1,841,555)

 

-

 

(218,402)

 

-

 

-

 

(5,818,557)

   Balance at 09/30/19

   25,289,236

 

  2,474,211

 

   12,085,955

 

   281,597

 

   788,363

 

(166,299)

 

  2,290,970

 

   43,044,033

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At 12/31/18

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   Cost

   79,002,076

 

   18,032,770

 

   16,131,867

 

   314,832

 

  4,874,741

 

(156,892)

 

  2,112,089

 

120,311,483

   Accumulated depreciation

(54,333,867)

 

(15,461,751)

 

(12,364,883)

 

-

 

(4,041,843)

 

-

 

-

 

(86,202,344)

   Total

   24,668,209

 

  2,571,019

 

  3,766,984

 

   314,832

 

   832,898

 

(156,892)

 

  2,112,089

 

   34,109,139

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At 09/30/19

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   Cost

   81,985,614

 

   18,886,599

 

   26,229,444

 

   281,597

 

  4,962,101

 

(166,299)

 

  2,290,970

 

134,470,026

   Accumulated depreciation

(56,696,378)

 

(16,412,388)

 

(14,143,489)

 

-

 

(4,173,738)

 

-

 

-

 

(91,425,993)

   Total

   25,289,236

 

  2,474,211

 

   12,085,955

 

   281,597

 

   788,363

 

(166,299)

 

  2,290,970

 

   43,044,033

 

 

Page 26


 
 

(A free translation of the original in Portuguese)

 

Telefônica Brasil S. A.

NOTES TO THE QUARTERLY FINANCIAL STATEMENTS

Three and nine-month periods ended September 30, 2019

(In thousands of Reais, unless otherwise stated)

                                           

 

 

Consolidated

 

   Switching and transmission equipment

 

Terminal equipment / modems

 

   Infrastructure

 

   Land

 

   Other P&E

 

Estimated losses (1)

 

   Assets and facilities under construction

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances and changes:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   Balance at 12/31/17

   22,809,109

 

  2,724,332

 

  3,885,297

 

   314,353

 

   830,452

 

(228,052)

 

  2,886,825

 

   33,222,316

   Additions

  10,092

 

   110,852

 

  58,795

 

  550

 

   126,015

 

   (8,565)

 

  4,849,348

 

  5,147,087

   Write-offs, net

   (16,939)

 

   (236)

 

   (7,513)

 

-

 

   (1,938)

 

  18,455

 

   (21,582)

 

   (29,753)

   Net transfers

  3,866,505

 

   402,320

 

   293,890

 

-

 

  91,838

 

-

 

(4,703,157)

 

   (48,604)

   Depreciation (Note 24)

(2,426,138)

 

(1,047,754)

 

(432,850)

 

-

 

(248,906)

 

-

 

-

 

(4,155,648)

   Balance at 09/30/18

   24,242,629

 

  2,189,514

 

  3,797,619

 

   314,903

 

   797,461

 

(218,162)

 

  3,011,434

 

   34,135,398

   Additions

  578

 

  18,788

 

  43,003

 

-

 

  78,026

 

   (410)

 

  1,677,726

 

  1,817,711

   Write-offs, net

   (28,780)

 

   (1,485)

 

   (948)

 

  (71)

 

   (988)

 

  61,680

 

  (39,848)

 

   (10,440)

   Net transfers

  1,514,239

 

   696,060

 

   155,479

 

-

 

  32,934

 

-

 

(2,536,416)

 

(137,704)

   Depreciation

(1,060,454)

 

(331,793)

 

(226,065)

 

-

 

   (71,326)

 

-

 

-

 

(1,689,638)

   Balance at 12/31/18

   24,668,212

 

  2,571,084

 

  3,769,088

 

   314,832

 

   836,107

 

(156,892)

 

  2,112,896

 

   34,115,327

   Initial adoption IFRS 16

  91,836

 

-

 

  8,526,236

 

-

 

-

 

-

 

-

 

  8,618,072

   Additions

  71,276

 

   112,526

 

 1,454,623

 

-

 

   156,376

 

   (12,227)

 

  4,743,082

 

  6,525,656

   Write-offs, net (2)

   (7,954)

 

   (198)

 

   (22,741)

 

   (2,650)

 

   (1,072)

 

2,820

 

   (11,767)

 

   (43,562)

   Net transfers

  3,168,698

 

   847,031

 

   385,631

 

-

 

  85,777

 

-

 

(4,552,742)

 

   (65,605)

   Subletting (4)

-

 

-

 

   (10,310)

 

-

 

-

 

-

 

-

 

   (10,310)

   Transfers of goods destined for sale (3)

   (306)

 

-

 

(172,480)

 

   (30,585)

 

   (67,143)

 

-

 

-

 

(270,514)

   Depreciation (Note 24)

(2,702,523)

 

(1,056,094)

 

(1,842,259)

 

-

 

(219,402)

 

-

 

-

 

(5,820,278)

   Business combinations (Note 1 c.1)

-

 

   9

 

  343

 

-

 

  10,551

 

   (691)

 

-

 

  10,212

   Balance at 09/30/19

   25,289,239

 

  2,474,358

 

   12,088,131

 

   281,597

 

   801,194

 

(166,990)

 

  2,291,469

 

   43,058,998

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At 12.31.18

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   Cost

   79,002,102

 

   18,033,246

 

   16,154,562

 

   314,832

 

  4,996,170

 

(156,892)

 

  2,112,896

 

120,456,916

   Accumulated depreciation

(54,333,890)

 

(15,462,162)

 

(12,385,474)

 

-

 

(4,160,063)

 

-

 

-

 

(86,341,589)

   Total

   24,668,212

 

  2,571,084

 

  3,769,088

 

   314,832

 

   836,107

 

(156,892)

 

  2,112,896

 

   34,115,327

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At 09/30/19

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   Cost

   81,985,641

 

   18,887,395

 

   26,252,015

 

   281,597

 

  5,121,612

 

(166,990)

 

  2,291,469

 

134,652,739

   Accumulated depreciation

(56,696,402)

 

(16,413,037)

 

(14,163,884)

 

-

 

(4,320,418)

 

-

 

-

 

(91,593,741)

   Total

   25,289,239

 

  2,474,358

 

   12,088,131

 

   281,597

 

   801,194

 

(166,990)

 

  2,291,469

 

   43,058,998

 

(1)  The Company and its subsidiaries recognized estimated losses for potential obsolescence of materials used for property and equipment maintenance, based on levels of historical use and expected future use.

 

(2)  Includes the amount of R$12,065 in the Infrastructure, related to cancellation of lease agreements (Note 19).

 

(3)  Refers to transfers of assets from the Tamboré and Curitiba (CIC) data centers, sold for the amount of R$419,690 to a company controlled by Asterion Industrial Partners SGEIC, SA, pursuant to an agreement entered into by the Company on May 8, 2019 and concluded. with the settlement on July 24, 2019, generating a gain in operating income of R$64,275.

 

(4)  Refers to the lease of areas in the Curitiba data center.

 

The depreciation rates above were reviewed as of January 1, 2019 upon adoption of IFRS 16, generating an increase of R$1,390,772 in depreciation costs and expenses in the nine-month period ended September 30, 2019. The following is a comparative table of these rates.

 

 

Company / Consolidated

Description

09/30/19

 

12/31/18

Switching and transmission equipment and media

2.50% to 92.31%

 

2.50% to 25.00%

Terminal equipment / modems

6.67% to 66.67%

 

6.67% to 66.67%

Infrastructure

2.50% to 92.31%

 

2.50% to 66.67%

Other P&E assets

10.00% to 25.00%

 

10.00% to 25.00%

 

Page 27


 
 

(A free translation of the original in Portuguese)

 

Telefônica Brasil S. A.

NOTES TO THE QUARTERLY FINANCIAL STATEMENTS

Three and nine-month periods ended September 30, 2019

(In thousands of Reais, unless otherwise stated)

                                           

b)   Additional information on leases


Changes in leases, after the adoption of IFRS 16, already included in the asset movement tables (Note 12.a), are as follows.

 

 

 

Consolidated

 

 

   Switching and transmission equipment

 

   Infrastructure

 

Other

 

Total

 

 

 

 

 

 

 

 

 

Annual depreciation rate (%)

 

5.00 to 92.31

 

3.13 to 92.31

 

20.00

 

 

 

 

 

 

 

 

 

 

 

Balances and changes:

 

 

 

 

 

 

 

 

   Balance at 12/31/18 (1)

 

186,554

 

189,455

 

   10,950

 

386,959

   Initial Adoption in 01.01.19

 

   91,836

 

  8,526,236

 

   -

 

  8,618,072

   Additions

 

   18,315

 

  1,402,742

 

   -

 

  1,421,057

   Subletting (Note 12.a)

 

   -

 

  (10,310)

 

   -

 

  (10,310)

   Depreciation and write-offs, net (IAS 17)

 

   -

 

  (44,749)

 

   -

 

  (44,749)

   Depreciation (IFRS 16)

 

  (24,878)

 

(1,360,097)

 

(5,797)

 

(1,390,772)

   Cancellation of contracts

 

   -

 

  (12,065)

 

   -

 

  (12,065)

   Balance at 09/30/19

 

271,827

 

  8,691,212

 

  5,153

 

  8,968,192

 

(1) Includes lease under IAS 17 and provision for dismantling for the leases.

 

c) Property and equipment items pledged in guarantee

 

At September 30, 2019, the Company had property and equipment (consolidated) pledged in guarantee for lawsuits, of R$81,651 (R$94,641 at December 31, 2018).

 

d) Reversible assets

 

The STFC service concession arrangement establishes that all assets owned by the Company and that are indispensable to the provision of the services described in the arrangement are considered “reversible” (returnable to the concession authority). At September 30, 2019, estimated residual value of reversible assets was R$8,042,238 (R$8,621,863 at December 31, 2018), which comprised switching and transmission equipment and public use terminals, external network equipment, energy, system and operational support equipment.

 

 

 

Page 28


 
 

(A free translation of the original in Portuguese)

 

Telefônica Brasil S. A.

NOTES TO THE QUARTERLY FINANCIAL STATEMENTS

Three and nine-month periods ended September 30, 2019

(In thousands of Reais, unless otherwise stated)

                                           

13) INTANGIBLE ASSETS

 

a) Breakdown, changes and amortization rates  

 

 

Company

 

Indefinite useful life

 

Finite useful life

 

 

 

Goodwill (1)

 

Software

 

Customer portfolio

 

Trademarks

 

Licenses

 

   Other intangible assets

 

Estimated losses for software

 

Software under development

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Annual amortization rate (%)

 

 

20.00

 

11.76

 

5.13

 

3.60 to 6.67

 

6.67 to 20.00

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances and changes:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   Balance at 12/31/17

   22,850,363

 

  2,704,400

 

  1,978,863

 

  1,073,615

 

   13,969,606

 

  20,948

 

   (499)

 

   506,140

 

   43,103,436

   Additions

-

 

   249,825

 

-

 

-

 

-

 

-

 

-

 

   668,707

 

   918,532

   Write-offs, net

-

 

  (14)

 

-

 

-

 

-

 

-

 

-

 

-

 

  (14)

   Net transfers

-

 

   357,981

 

-

 

-

 

-

 

-

 

-

 

(309,451)

 

  48,530

   Amortization (Note 24)

-

 

(718,507)

 

(412,191)

 

   (63,154)

 

(690,058)

 

   (3,092)

 

-

 

-

 

(1,887,002)

   Balance at 09/30/18

   22,850,363

 

  2,593,685

 

  1,566,672

 

  1,010,461

 

   13,279,548

 

  17,856

 

   (499)

 

   865,396

 

   42,183,482

   Additions

-

 

   714,069

 

-

 

-

 

6,647

 

-

 

-

 

(419,400)

 

   301,316

   Write-offs, net

-

 

  (1)

 

-

 

-

 

-

 

-

 

-

 

-

 

  (1)

   Net transfers

-

 

   161,557

 

-

 

-

 

-

 

  32,467

 

-

 

   (56,319)

 

   137,705

   Incorporation (Note 1 c..2)

   212,058

 

  18,051

 

-

 

-

 

-

 

-

 

-

 

-

 

   230,109

   Amortization

-

 

(242,836)

 

(137,398)

 

   (21,051)

 

(230,058)

 

   (876)

 

-

 

-

 

(632,219)

   Balance at 12/31/18

   23,062,421

 

  3,244,525

 

  1,429,274

 

   989,410

 

   13,056,137

 

  49,447

 

   (499)

 

   389,677

 

   42,220,392

   Additions

-

 

   234,826

 

-

 

-

 

-

 

-

 

-

 

  1,133,064

 

  1,367,890

   Write-offs, net (1)

   (3,249)

 

  (9)

 

-

 

-

 

-

 

-

 

-

 

-

 

   (3,258)

   Net transfers

-

 

  1,159,842

 

-

 

-

 

-

 

  (65)

 

-

 

(1,094,356)

 

  65,421

   Transfers of goods destined for sale (2)

-

 

   (1,537)

 

-

 

-

 

-

 

-

 

-

 

-

 

   (1,537)

   Amortization (Note 24)

-

 

(903,520)

 

(412,191)

 

   (63,154)

 

(728,110)

 

   (2,952)

 

-

 

-

 

(2,109,927)

   Balance at 09/30/19

   23,059,172

 

  3,734,127

 

  1,017,083

 

   926,256

 

   12,328,027

 

  46,430

 

   (499)

 

   428,385

 

   41,538,981

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At 12/31/18

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   Cost

   23,062,421

 

   16,498,947

 

  4,513,278

 

  1,658,897

 

   20,244,219

 

   270,659

 

   (499)

 

   389,677

 

   66,637,599

   Accumulated amortization

-

 

(13,254,422)

 

(3,084,004)

 

(669,487)

 

(7,188,082)

 

(221,212)

 

-

 

-

 

(24,417,207)

   Total

   23,062,421

 

  3,244,525

 

  1,429,274

 

   989,410

 

   13,056,137

 

  49,447

 

   (499)

 

   389,677

 

   42,220,392

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At 09/30/19

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   Cost

   23,059,172

 

   17,867,422

 

  4,513,278

 

  1,658,897

 

   20,244,219

 

  269,918

 

   (499)

 

   428,385

 

   68,040,792

   Accumulated amortization

-

 

(14,133,295)

 

(3,496,195)

 

(732,641)

 

(7,916,192)

 

(223,488)

 

-

 

-

 

(26,501,811)

   Total

   23,059,172

 

  3,734,127

 

  1,017,083

 

   926,256

 

   12,328,027

 

  46,430

 

   (499)

 

   428,385

 

   41,538,981

 

 

 

Page 29


 
 

(A free translation of the original in Portuguese)

 

Telefônica Brasil S. A.

NOTES TO THE QUARTERLY FINANCIAL STATEMENTS

Three and nine-month periods ended September 30, 2019

(In thousands of Reais, unless otherwise stated)

 

 

 

Consolidated

 

Indefinite useful life

 

Finite useful life

 

 

 

Goodwill (1)

 

Software

 

Customer portfolio

 

Trademarks

 

Licenses

 

   Other intangible assets

 

Estimated losses for software

 

Software under development

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Annual amortization rate (%)

 

 

20.00 to 50.00

 

11.76 to 12.85

 

5.13 to 66.67

 

3.60 to 6.67

 

6.67 to 20.00

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances and changes:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   Balance at 12/31/17

   23,062,421

 

  2,720,806

 

  1,978,863

 

  1,073,615

 

   13,969,606

 

  20,952

 

   (499)

 

   506,140

 

   43,331,904

   Additions

-

 

   255,554

 

-

 

-

 

-

 

-

 

-

 

   668,707

 

   924,261

   Write-offs, net

-

 

  (14)

 

-

 

-

 

-

 

-

 

-

 

-

 

  (14)

   Net transfers

-

 

   357,981

 

-

 

-

 

-

 

74

 

-

 

(309,451)

 

  48,604

   Amortization (Note 24)

-

 

(721,773)

 

(412,191)

 

   (63,154)

 

(690,058)

 

   (3,092)

 

-

 

-

 

(1,890,268)

   Balance at 09/30/18

   23,062,421

 

  2,612,554

 

  1,566,672

 

  1,010,461

 

   13,279,548

 

  17,934

 

   (499)

 

   865,396

 

   42,414,487

   Additions

-

 

   714,618

 

-

 

-

 

6,647

 

-

 

-

 

(419,400)

 

   301,865

   Net transfers

-

 

   161,558

 

-

 

-

 

-

 

  32,465

 

-

 

   (56,319)

 

   137,704

   Amortization

-

 

(243,686)

 

(137,398)

 

   (21,051)

 

(230,058)

 

   (876)

 

-

 

-

 

(633,069)

   Balance at 12/31/18

   23,062,421

 

  3,245,042

 

  1,429,274

 

   989,410

 

   13,056,137

 

  49,523

 

   (499)

 

   389,677

 

   42,220,985

   Additions

-

 

   236,385

 

-

 

-

 

-

 

-

 

-

 

  1,133,801

 

  1,370,186

   Write-offs, net (1)

   (3,249)

 

  (8)

 

-

 

-

 

-

 

-

 

-

 

-

 

   (3,257)

   Net transfers

-

 

  1,159,839

 

-

 

-

 

-

 

  (65)

 

-

 

(1,094,169)

 

  65,605

   Amortization (Note 24)

-

 

(903,851)

 

(412,191)

 

   (63,154)

 

(728,110)

 

   (2,952)

 

-

 

-

 

(2,110,258)

   Transfers of goods destined for sale (2)

-

 

   (1,537)

 

-

 

-

 

-

 

-

 

-

 

-

 

   (1,537)

   Business combinations (Note 1 c.1)

-

 

  596

 

-

 

-

 

-

 

-

 

-

 

-

 

  596

   Balance at 09/30/19

   23,059,172

 

  3,736,466

 

  1,017,083

 

   926,256

 

   12,328,027

 

 46,506

 

   (499)

 

   429,309

 

   41,542,320

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At 12/31/18

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   Cost

   23,062,421

 

   16,604,769

 

  4,513,278

 

  1,658,897

 

   20,244,219

 

   270,741

 

   (499)

 

   389,677

 

   66,743,503

   Accumulated amortization

-

 

(13,359,727)

 

(3,084,004)

 

(669,487)

 

(7,188,082)

 

(221,218)

 

-

 

-

 

(24,522,518)

   Total

   23,062,421

 

  3,245,042

 

  1,429,274

 

   989,410

 

   13,056,137

 

  49,523

 

   (499)

 

   389,677

 

   42,220,985

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At 09/30/19

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   Cost

   23,059,172

 

   17,978,546

 

  4,513,278

 

  1,658,897

 

   20,244,219

 

  270,000

 

   (499)

 

   429,309

 

   68,152,922

   Accumulated amortization

-

 

(14,242,080)

 

(3,496,195)

 

(732,641)

 

(7,916,192)

 

(223,494)

 

-

 

-

 

(26,610,602)

   Total

   23,059,172

 

  3,736,466

 

  1,017,083

 

   926,256

 

   12,328,027

 

  46,506

 

   (499)

 

   429,309

 

   41,542,320

 

(1)  Goodwill information is consistent with Note 13.d) Goodwill in the financial statements for the year ended December 31, 2018, except for the proportional write-off in the amount of R$3,249, made in July 2019, resulting from the sale of the Tamboré and Curitiba (CIC) data centers, pursuant to paragraph 86 of CPC 01 (R1) / IAS 36.

 

(2)  Refers to transfers of assets from the Tamboré and Curitiba (CIC) data centers, sold for the amount of R $ 419,690 to a company controlled by Asterion Industrial Partners SGEIC, SA, pursuant to an agreement entered into by the Company on May 8, 2019 and concluded. with the settlement on July 24, 2019, generating a gain in operating income of R$64,275.

 

14)  PERSONNEL, SOCIAL CHARGES AND BENEFITS 

 

 

Company

 

Consolidated

 

09/30/19

 

12/31/18

 

09/30/19

 

12/31/18

Salaries and wages

24,844

 

33,803

 

26,193

 

34,767

Social charges and benefits

   517,491

 

   372,408

 

   538,100

 

   385,695

Profit sharing

   182,141

 

   262,270

 

   186,653

 

   265,433

Share-based payment plans (Note 28)

44,475

 

22,467

 

45,320

 

22,638

Other compensation

-

 

86,000

 

-

 

86,000

Total

   768,951

 

   776,948

 

   796,266

 

   794,533

 

 

 

 

 

 

 

 

Current

   738,928

 

   765,098

 

   766,093

 

   782,630

Non-current

30,023

 

11,850

 

30,173

 

11,903

 

 

Page 30


 
 

(A free translation of the original in Portuguese)

Telefônica Brasil S. A.

NOTES TO THE QUARTERLY FINANCIAL STATEMENTS

Three and nine-month periods ended September 30, 2019

(In thousands of Reais, unless otherwise stated)

                                           

15)  TRADE ACCOUNTS PAYABLE  

 

 

Company

 

Consolidated

 

09/30/19

 

12/31/18

 

09/30/19

 

12/31/18

Sundry suppliers (Opex, Capex, Services e Material)

   6,198,540

 

   6,752,721

 

   6,256,667

 

   6,790,882

Amounts payable (operators, cobilling)

   239,546

 

   205,017

 

   239,546

 

   198,942

Interconnection / interlink

   264,235

 

   269,446

 

   264,235

 

   269,446

Related parties (Note 27)

   481,831

 

   518,949

 

   331,304

 

   383,512

Total

   7,184,152

 

   7,746,133

 

   7,091,752

 

   7,642,782

 

16) TAXES, CHARGES AND CONTRIBUTIONS PAYABLE

 

Company

 

Consolidated

 

09/30/19

 

12/31/18

 

09/30/19

 

12/31/18

ICMS

   980,607

 

   1,051,536

 

   1,026,619

 

   1,094,769

PIS and COFINS

   327,417

 

   505,011

 

   333,926

 

   512,714

Fust and Funttel

89,736

 

89,794

 

89,736

 

89,794

ISS, CIDE and other taxes

   110,126

 

   132,420

 

   119,764

 

   139,933

Total

   1,507,886

 

   1,778,761

 

   1,570,045

 

   1,837,210

 

 

 

 

 

 

 

 

Current

   1,273,399

 

   1,739,516

 

   1,290,212

 

   1,797,965

Non-current

   234,487

 

39,245

 

   279,833

 

39,245

 

17)  DIVIDENDS AND INTEREST ON EQUITY (IOE)

 

a)   Dividends and interest on equity receivable from Terra Networks

 

 

 

Company

Balance at 12/31/18

 

51,785

Terra Networks supplementary dividends for 2018

 

  153,875

Receipt of dividends of Terra Networks

 

(205,660)

Balance at 09/30/19

 

  -

 

For purposes of the cash flow statement, interest on equity and dividends received from the subsidiary are allocated to “Investing Activities” group of accounts.

 

b)   Dividends and interest on equity payable

 

b.1) Breakdown:

Page 31


 
 

(A free translation of the original in Portuguese)

 

Telefônica Brasil S. A.

NOTES TO THE QUARTERLY FINANCIAL STATEMENTS

Three and nine-month periods ended September 30, 2019

(In thousands of Reais, unless otherwise stated)

                                           

 

 

 

 

 

Company / Consolidated

 

 

 

 

09/30/19

 

12/31/18

Telefónica Latinoamérica Holding

 

 

 

           1,358,706

 

              952,217

Telefónica

 

 

 

           1,636,095

 

           1,146,619

SP Telecomunicações Participações

 

 

 

           1,031,442

 

              722,862

Telefónica Chile

 

 

 

                  2,875

 

                  2,015

Non-controlling interest

 

 

 

           1,835,686

 

           1,349,203

Total

 

 

 

           5,864,804

 

           4,172,916

 

b.2) Changes:

 

 

 

 

 

 

 

Company / Consolidated

Balance at 12/31/18

 

 

 

 

 

           4,172,916

Supplementary dividends for 2018

 

 

 

 

 

           2,468,684

Interim interest on equity (net of IRRF)

 

 

 

 

 

           1,902,300

Unclaimed dividends and interest on equity

 

 

 

 

 

              (31,335)

Payment of dividends and interest on equity

 

 

 

 

 

         (2,653,518)

IRRF on shareholders exempt/immune from interest on equity

 

 

 

                  5,757

Balance at 09/30/19

 

 

 

 

 

           5,864,804

 

For purposes of the cash flow statement, interest on equity and dividends paid to shareholders are recognized in “Financing Activities”.

 

The rights to receive unclaimed interest on equity and dividends prescribe after three years from the initial date available for payment. When dividends and interest on equity expire, these amounts are reversed to retained earnings.

 

18) PROVISIONS AND CONTINGENCIES

 

The Company and its subsidiaries are parts to administrative and judicial proceedings and labor, tax and civil claims filed in different courts. The management of the Company and its subsidiaries, based on the opinion of its legal counsel, recognized provision for proceedings for which an unfavorable outcome is considered probable.

 

Breakdown of changes in provision for cases in which an unfavorable outcome is probable, in addition to contingent liabilities and provision for decommissioning are as follows:

 

Page 32


 
 

(A free translation of the original in Portuguese)

 

Telefônica Brasil S. A.

NOTES TO THE QUARTERLY FINANCIAL STATEMENTS

Three and nine-month periods ended September 30, 2019

(In thousands of Reais, unless otherwise stated)
 

 

Company

 

Provisions for contingencies

 

 

 

 

 

Labor

 

Tax

 

Civil

 

Regulatory

 

Contingent liabilities (PPA) (1)

 

Provision for decommissioning (2)

 

Total

Balances at 12/31/17

  954,319

 

3,474,900

 

1,047,435

 

1,103,792

 

  845,796

 

574,725

 

8,000,967

Additions (reversal), net (Note 25)

  262,226

 

  450,035

 

  341,099

 

  (45,555)

 

  (24,129)

 

(7,497)

 

  976,179

Other additions (reversal) (3)

  (104,504)

 

(2,402,509)

 

  (11,554)

 

  -

 

  -

 

11,843

 

(2,506,724)

Write-offs due to payment

  (429,076)

 

  (31,393)

 

  (442,665)

 

  (117,000)

 

  -

 

  -

 

(1,020,134)

Monetary restatement

  99,812

 

  398,366

 

  109,280

 

  31,273

 

  (4,727)

 

13,502

 

  647,506

Balances at 09/30/18

  782,777

 

1,889,399

 

1,043,595

 

  972,510

 

  816,940

 

592,573

 

6,097,794

Additions (reversal), net

  46,807

 

  2,449

 

  51,067

 

  3,718

 

  (3,216)

 

7,497

 

  108,322

Other additions (reversal) (3)

(1)

 

  (40,434)

 

  (1,092)

 

  -

 

  -

 

4,083

 

  (37,444)

Write-offs due to payment

  (100,955)

 

  (19,983)

 

  (153,198)

 

(599)

 

  -

 

  -

 

  (274,735)

Incorporation (Note 1 c.2)

  -

 

  22,611

 

  -

 

  -

 

  -

 

4,755

 

  27,366

Monetary restatement

  18,124

 

  13,487

 

  55,368

 

  46,587

 

  13,551

 

63,713

 

  210,830

Balances at 12/31/18

  746,752

 

1,867,529

 

  995,740

 

1,022,216

 

  827,275

 

672,621

 

6,132,133

Additions (reversal), net (Note 25)

  99,961

 

  80,958

 

  218,373

 

  90,356

 

  (16,079)

 

(24,448)

 

  449,121

Other additions (reversal) (3)

  -

 

  -

 

(636)

 

  -

 

  -

 

44,740

 

  44,104

Write-offs due to payment

  (370,320)

 

  (16,442)

 

  (657,869)

 

  (7,481)

 

  -

 

  -

 

(1,052,112)

Monetary restatement

  65,267

 

  85,965

 

  196,941

 

  55,349

 

  16,258

 

35,711

 

  455,491

Balances at 09/30/19

  541,660

 

2,018,010

 

  752,549

 

1,160,440

 

  827,454

 

728,624

 

   6,028,737

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At 12/31/18

 

 

 

 

 

 

 

 

 

 

 

 

 

Current

  245,804

 

  -

 

  132,122

 

  -

 

  -

 

  -

 

  377,926

Non-current

  500,948

 

1,867,529

 

  863,618

 

1,022,216

 

  827,275

 

672,621

 

5,754,207

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At 09/30/19

 

 

 

 

 

 

 

 

 

 

 

 

 

Current

  251,011

 

  -

 

  102,269

 

  62,291

 

  -

 

  -

 

  415,571

Non-current

  290,649

 

2,018,010

 

  650,280

 

1,098,149

 

  827,454

 

728,624

 

5,613,166

 

 

Consolidated

 

Provisions for contingencies

 

 

 

 

 

Labor

 

Tax

 

Civil

 

Regulatory

 

Contingent liabilities (PPA) (1)

 

Provision for decommissioning (2)

 

Total

Balances at 12/31/17

  980,596

 

3,579,208

 

1,055,877

 

1,103,792

 

  845,796

 

579,481

 

8,144,750

Additions (reversal), net (Note 25)

  270,786

 

  450,298

 

  344,295

 

  (45,555)

 

  (24,129)

 

(7,497)

 

  988,198

Other additions (reversal) (3)

  (99,582)

 

(2,402,612)

 

  (13,099)

 

  -

 

  -

 

11,843

 

(2,503,450)

Write-offs due to payment

  (438,559)

 

  (31,941)

 

  (444,774)

 

  (117,000)

 

  -

 

  -

 

(1,032,274)

Monetary restatement

  102,294

 

  400,735

 

  110,096

 

  31,273

 

  (4,727)

 

13,502

 

  653,173

Balances at 09/30/18

  815,535

 

1,995,688

 

1,052,395

 

  972,510

 

  816,940

 

597,329

 

6,250,397

Additions (reversal), net

  48,270

 

  2,448

 

  51,336

 

  3,718

 

  (3,216)

 

7,497

 

  110,053

Other additions (reversal) (3)

210

 

  (40,435)

 

  (1,020)

 

  -

 

  -

 

4,909

 

  (36,336)

Write-offs due to payment

  (103,190)

 

  (19,983)

 

  (153,520)

 

   (599)

 

  -

 

  -

 

  (277,292)

Monetary restatement

  18,861

 

  14,179

 

  55,612

 

  46,587

 

  13,551

 

63,713

 

  212,503

Balances at 12/31/18

  779,686

 

1,951,897

 

1,004,803

 

1,022,216

 

  827,275

 

673,448

 

6,259,325

Additions (reversal), net (Note 25)

  104,644

 

  80,963

 

  220,031

 

  90,356

 

  (16,079)

 

(24,448)

 

 455,467

Other additions (reversal) (3)

  (1,088)

 

  -

 

  (1,278)

 

  -

 

  -

 

44,740

 

  42,374

Write-offs due to payment

  (377,463)

 

  (16,449)

 

  (659,362)

 

  (7,481)

 

 -

 

  -

 

(1,060,755)

Monetary restatement

  68,488

 

  87,677

 

  198,070

 

  55,349

 

  16,258

 

35,711

 

  461,553

Business combinations (Note 1 c.1)

  7,805

 

  -

 

7

 

  -

 

  -

 

  -

 

  7,812

Balances at 09/30/19

  582,072

 

2,104,088

 

  762,271

 

1,160,440

 

  827,454

 

729,451

 

6,165,776

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At 12/31/18

 

 

 

 

 

 

 

 

 

 

 

 

 

Current

  245,805

 

  -

 

  132,124

 

  -

 

  -

 

  -

 

  377,929

Non-current

  533,881

 

1,951,897

 

  872,679

 

1,022,216

 

  827,275

 

673,448

 

5,881,396

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At 09/30/19

 

 

 

 

 

 

 

 

 

 

 

 

 

Current

  261,496

 

  -

 

  102,677

 

  62,291

 

  -

 

  -

 

  426,464

Non-current

  320,576

 

2,104,088

 

  659,594

 

1,098,149

 

  827,454

 

729,451

 

5,739,312

 

 

Page 33


 
 

(A free translation of the original in Portuguese)

 

Telefônica Brasil S. A.

NOTES TO THE QUARTERLY FINANCIAL STATEMENTS

Three and nine-month periods ended September 30, 2019

(In thousands of Reais, unless otherwise stated)

                                           

(1) Refers to contingent liabilities from the Purchase Price Allocation (PPA) on acquisition of the controlling interest of Vivo Participações in 2011 and GVTPart. in 2015.

 

(2) Refers to costs to be incurred to return the sites (locations for installation of base radio, equipment and real estate) to their respective owners in the same conditions as at the time of execution of the initial lease agreement.

 

(3)  Refers mainly to the amounts of inflows and losses against judicial deposits (Note 9).

 

a) Provisions and labor contingencies

 

 

  Amounts involved 

 

Company

 

Consolidated

Nature/Degree of Risk

09/30/19

 

12/31/18

 

09/30/19

 

12/31/18

Provisions - probable losses

 541,660

 

 746,752

 

 582,072

 

 779,686

Possible losses

 178,812

 

 152,297

 

 207,974

 

 191,398

 

Labor provision and contingencies involve labor claims filed by former employees and outsourced employees (the latter involving subsidiary or joint liability) claiming for, among other issues, overtime, salary equalization, post-retirement benefits, allowance for health hazard and risk premium, and matters relating to outsourcing.

 

The Company is also a defendant in labor claims filed by retired former employees who are covered by the Retired Employees Medical Assistance Plan ("PAMA"), and, among other issues, are demanding the cancellation of amendments to this plan. Most of these claims await a decision by the Superior Labor Court. Based on the opinion of its legal counsel and recent decisions of the courts, management considers the risk of loss in these cases as possible. No amount has been specified for these claims, since is not possible to estimate the cost to the Company in the event of loss.

 

In addition, the Company is a part to Public Civil Actions filed by the Public Prosecution Service whose purpose is essentially the determination of the Company to stop hiring a company to perform the Company's core activities. In August 2018, the majority of the Federal Supreme Court (“STF”) Ministers ruled the unrestricted outsourcing to be legally valid, including the end activity, safeguarding the subsidiary responsibility of the service receiver. However, a final judgment has yet to clarify the scope of this decision, including in cases already final and unappealable. The application of the decision will need to be individually evaluated for each case under discussion. Given these considerations, it is not feasible to estimate amounts or likelihood of loss for the Company.

 

b) Provisions and tax contingencies

 

 

  Amounts involved 

 

Company

 

Consolidated

Nature/Degree of Risk

09/30/19

 

12/31/18

 

09/30/19

 

12/31/18

Provisions - probable losses

2,018,010

 

1,867,529

 

2,104,088

 

1,951,897

Federal

  476,928

 

  442,575

 

  563,006

 

  526,943

State

1,009,839

 

  909,547

 

1,009,839

 

  909,547

Municipal

  34,526

 

  33,607

 

  34,526

 

  33,607

FUST

  496,717

 

  481,800

 

  496,717

 

  481,800

Possible losses

34,688,284

 

35,257,515

 

35,588,443

 

36,103,128

Federal

12,254,198

 

11,743,016

 

12,552,982

 

12,025,529

State

13,848,481

 

15,736,730

 

14,442,912

 

16,294,685

Municipal

  653,180

 

  632,569

 

  660,099

 

  637,690

FUST, FUNTTEL e FISTEL

7,932,425

 

7,145,200

 

7,932,450

 

7,145,224

 

b.1) Probable tax contingencies

 

Management, under advice of legal counsel, believes that the following losses are probable in the following federal, state, municipal and regulatory (FUST) tax proceedings:

 

Page 34


 
 

(A free translation of the original in Portuguese)

 

Telefônica Brasil S. A.

NOTES TO THE QUARTERLY FINANCIAL STATEMENTS

Three and nine-month periods ended September 30, 2019

(In thousands of Reais, unless otherwise stated)

                                           

 

Federal taxes

 

The Company and/or its subsidiaries are parts to administrative and legal proceedings relating to: (i) claims resulting from the non-ratification of compensation and refund requests formulated; (ii) CIDE levied on the remittance of amounts abroad related to technical and administrative assistance and similar services, as well as royalties; (iii) withholding income tax on interest on equity; (iv) Social Investment Fund (Finsocial) offset amounts; and (v) additional charges to the PIS and COFINS tax base, as well as additional charges to COFINS required by Law No. 9,718/98.

 

State taxes

 

The Company and/or its subsidiaries are parts to administrative and judicial proceedings relating to ICMS, regarding: (i) disallowance credits; (ii) non-taxation of telecommunications services; (iii) tax credit for challenges/disputes over telecommunication services not provided or wrongly charged (Agreement 39/01); (iv) aliquot differential; (v) leasing of infrastructure necessary for internet services (data); (vi) outflows of goods with prices lower than those of acquisition; and (vii) non-taxation of amounts granted as discounts to customers.

 

Municipal taxes

 

The Company and/or its subsidiaries are parts to various municipal tax proceedings, at the judicial level, relating to: (i) Property tax (“IPTU”); (ii) Services tax (“ISS”) on equipment leasing services, non-core activities and supplementary activities; and (iii) withholding of ISS on contractors' services.

 

FUST


The Company and/or its subsidiaries have judicial proceedings related to the non-inclusion of interconnection expenses and industrial exploitation of a dedicated line in the calculation basis of FUST.

 

b.2) Possible tax contingencies

 

Management, under advice of legal counsel, believes that the following losses are possible in the following federal, state, municipal and other tax proceedings (FUST, FUNTTEL and FISTEL):

 

Federal taxes

 

The Company and/or its subsidiaries are parts to various administrative and judicial proceedings, at the federal level, which are awaiting decision in different court levels.

 

The more significant of these proceedings are: (i) statements of dissatisfaction resulting from failure to approve requests for compensation submitted by the Company; (ii) INSS (a) on compensation payment for salary losses arising from the "Plano Verão" and the "Plano Bresser"; (b) SAT, social security amounts owed to third parties (INCRA and SEBRAE); (c) supply of meals to employees, withholding of 11% (assignment of workforce); and (d) Stock Options - requirement of social security contributions on amounts paid to employees under the stock option plan; (iii) withholding income tax and CIDE on the funds remitted abroad related to technical services and to administrative support and similar services, etc., and royalties; (iv) income and social contribution taxes: (a) disallowance of costs and sundry expenses not evidenced; and (b) disallowance of expenses on goodwill of the corporate restructuring of Terra Networks and Vivo S.A., and for the takeovers of Navytree, TDBH, VivoPart. and GVTPart.; (v) deduction of COFINS on swap operation losses; (vi) PIS and COFINS: (a) accrual basis versus cash basis; (b) levied on value-added services; and (c) monthly subscription services; (vii) income tax-related incentive investments FINOR, FINAN or FUNRES; (viii) ex-tariff, cancellation of the benefits under CAMEX Resolution No. 6, increase in the import duty from 4% to 28%; (ix) IPI levied on shipment of fixed access units from the Company's establishment; (x) Financial transaction tax (IOF) - required on loan transactions, intercompany loans and credit transactions; and (xi) operating expenses allegedly non-deductible and related to estimated losses on the recoverable value of accounts receivable.

 

 

 

 

Page 35


 
 

(A free translation of the original in Portuguese)

 

Telefônica Brasil S. A.

NOTES TO THE QUARTERLY FINANCIAL STATEMENTS

Three and nine-month periods ended September 30, 2019

(In thousands of Reais, unless otherwise stated)

                                           

 

State taxes

 

The Company and/or its subsidiaries are parts to various administrative and judicial proceedings, at the state level, related to ICMS, which are awaiting decision in different court levels: (i) rental of movable property; (ii) international calls; (iii) reversal of previously unused credits; (iv) service provided outside São Paulo state paid to São Paulo state; (v) co-billing; (vi) tax substitution with a fictitious tax base (tax guideline); (vii) use of credits related to acquisition of electric power; (viii) secondary activities, value added and supplementary services; (ix) tax credits related to opposition/challenges regarding telecommunications services not provided or mistakenly charged (Agreement 39/01); (x) deferred collection of interconnection (“DETRAF” - Traffic and Service Provision Document); (xi) credits derived from tax benefits granted by other states; (xii) disallowance of tax incentives related to cultural projects; (xiii) transfers of assets among business units owned by the Company; (xiv) communications service tax credits used in provision of services of the same nature; (xv) card donation for prepaid service activation; (xvi) reversal of credit from return and free lease in connection with assignment of networks (used by the Company itself and exemption of public bodies); (xvii) DETRAF fine; (xviii) own consumption; (xix) exemption of public bodies; (xx) amounts given by way of discounts; (xxi) new tax register bookkeeping without prior authorization by tax authorities; (xxii) advertising services; (xxiii) unmeasured services; and (xxiv) monthly subscription, which is in the STF with declaration liens and the Company awaits the judgment of the STF on the request for modulation.

 

Municipal taxes

 

The Company and/or its subsidiaries are parts to various administrative and judicial proceedings, at the municipal level, which are awaiting decision in different court levels.

 

The more significant of these proceedings are: (i) ISS on: (a) non-core activity, value-added and supplementary services; (b) withholding at source; (c) call identification and mobile phone licensing services; (d) full-time services, provision, returns and cancelled tax receipts; (e) data processing and antivirus congeners; (f) charge for use of mobile network and lease of infrastructure; (g) advertising services; (h) services provided by third parties; and (i) advisory services in corporate management provided by Telefónica Latino América Holding; (ii) IPTU; (iii) land use tax; and (iv) various municipal charges.

 

FUST, FUNTTEL and FISTEL

 

Universal Telecommunications Services Fund ("FUST")

 

Writs of mandamus were filed seeking the right to not include revenues with interconnection and Industrial Use of Dedicated Line (“EILD”) in the FUST tax base, according to Abridgment No. 7 of December 15, 2005, as it does not comply with the provisions contained in the sole paragraph of Article 6 of Law No. 9,998/00, which are awaiting a decision from Higher Courts.

 

Various delinquency notices were issued by ANATEL at the administrative level to collect charges on interconnections, EILD and other revenues not earned from the provision of telecommunication services.

 

At September 30, 2019, the consolidated amount involved totaled R$4,675,102 (R$3,701,208 at December 31, 2018).

 

Fund for Technological Development of Telecommunications ("FUNTTEL")

 

Proceedings have been filed for the right not to include interconnection revenues and any others arising from the use of resources that are part of the networks in the FUNTTEL calculation basis, as determined by Law 10,052/00 and Decree No. 3,737/01, thus avoiding the improper application of Article 4, paragraph 5, of Resolution 95/13.

 

There are several notifications of debits drawn up by the Ministry of Communications in administrative actions for constitution of the tax credit related to the interconnection, network resources and other revenues that do not originate from the provision of telecommunication services.

 

At September 30, 2019, the consolidated amount involved totaled R$655,115 (R$618,473 at December 31, 2018).

 

Page 36


 
 

(A free translation of the original in Portuguese)

 

Telefônica Brasil S. A.

NOTES TO THE QUARTERLY FINANCIAL STATEMENTS

Three and nine-month periods ended September 30, 2019

(In thousands of Reais, unless otherwise stated)

                                           

 

Telecommunications Inspection Fund ("FISTEL")

 

There are judicial actions for the collection of TFI on: (i) extensions of the term of validity of the licenses for use of telephone exchanges associated with the operation of the fixed switched telephone service; and (ii) extensions of the period of validity of the right to use radiofrequency associated with the operation of the telephone service personal mobile service.

 

At September 30, 2019, the consolidated amount involved totaled R$2,602,233 (R$2,825,543 at December 31, 2018).

 

c) Provisions civil and contingencies

 

 

  Amounts involved 

 

Company

 

Consolidated

Nature/Degree of Risk

09/30/19

 

12/31/18

 

09/30/19

 

12/31/18

Provisions - probable losses

              752,549

 

              995,740

 

              762,271

 

           1,004,803

Possible losses

           3,488,306

 

           3,480,441

 

           3,502,433

 

           3,493,655

 

c.1) Provision for probable civil losses

 

Management, under advice of legal counsel, believes that the following will result in probable losses from civil proceedings:

 

·       The Company is part to proceedings involving rights to the supplementary amounts from shares calculated on network expansion plans since 1996 (supplement of share proceedings). These proceedings are at different stages: lower courts, court of justice and high court of justice. At September 30, 2019, consolidated provision totaled R$285,725 (R$334,877 at December 31, 2018).

 

·       The Company and/or its subsidiaries are parts to various civil proceedings related to consumers at the administrative and judicial level, relating to the non-provision of services and/or products sold. At September 30, 2019, consolidated provision totaled R$210,599 (R$353,850 at December 31, 2018).

 

·       The Company and/or its subsidiaries are parts to various civil proceedings of a non-consumer nature at administrative and judicial levels, all arising in the ordinary course of business. At September 30, 2019, consolidated provision totaled R$265,947 (R$316,076 at December 31, 2018).

 

c.2) Civil contingencies assessed as possible losses

 

Management, under advice of legal counsel, believes that losses are possible from the following civil proceedings:

 

·       Collective Action filed by SISTEL Participants' Association (“ASTEL”) in the state of São Paulo, in which SISTEL associates in the state of São Paulo challenge the changes made in the PAMA and claim for the reestablishment of the prior "status quo". This proceeding is still in the appeal phase and awaits a decision on the Interlocutory Appeal filed by the Company against the decision on possible admission of the appeal to higher and supreme courts filed in connection with the Court of Appeals' decision, which partially changed the decision rendering the matter groundless. The amount cannot be estimated, and the claims cannot be settled due to their unenforceability because it entails the return to the prior plan conditions.

 

·       Civil Class Actions filed by ASTEL, in the state of São Paulo, and by the Brazilian National Federation of Associations of Retirees, Pensioners and Pension Fund Members of the Telecommunications Industry “(FENAPAS”), both against SISTEL, the Company and other carriers, in order to annul the spin-off of the PBS private pension plan, alleging, in short, the "windup of the supplementary private pension plan of the SISTEL Foundation", which led to various specific mirror PBS plans, and corresponding allocation of funds from technical surplus and tax contingencies existing at the time of the spin-off. The amount cannot be estimated, and the claims cannot be settled due to their unenforceability because this involves the return of the spun-off assets of SISTEL relating to telecommunication carriers of the former Telebrás System.

Page 37


 
 

(A free translation of the original in Portuguese)

 

Telefônica Brasil S. A.

NOTES TO THE QUARTERLY FINANCIAL STATEMENTS

Three and nine-month periods ended September 30, 2019

(In thousands of Reais, unless otherwise stated)

                                           

·       The Company is part to other civil claims, at several levels, related to service rendering rights. Such claims have been filed by individual consumers, civil associations representing consumer rights or by the Bureau of Consumer Protection (“PROCON”), as well as by the Federal and State Public Prosecutor's Office. The Company is also part to other claims of several types related to the ordinary course of business. At September 30, 2019, the consolidated amount totaled R$3,477,303 (R$3,466,522 at December 31, 2018).

 

·       Terra Networks is a part to: (i) a supplier action related to the transmission of events; (ii) PROCON fine (annulment action); (iii) indemnification action related to the use of content; (iv) ECAD action on copyright collection; and (v) claim actions filed by former subscribers regarding unrecognized collection, collection of undue value and contractual non-compliance. At September 30, 2019, the amount was R$13,482 (R$12,926 at December 31, 2018).

 

·       The Company has received notices regarding non-compliance with the Customer Service (“SAC”) Decree. The Company is currently a part to various lawsuits (administrative and legal proceedings). At September 30, 2019 the amount was R$11,015 (R$14,207 at December 31, 2018).

 

·       Intellectual Property: Lune Projetos Especiais Telecomunicação Comércio e Ind. Ltda. (“Lune”), a Brazilian company, filed an action on November 20, 2001 against 23 wireless carriers claiming to own the patent for caller ID and the trademark "Bina". The purpose of that lawsuit was to interrupt provision of such service by carriers and to seek indemnification equivalent to the amount paid by consumers for using the service.

 

An unfavorable decision was handed down determining that the Company should refrain from selling mobile phones with caller ID service ("Bina"), subject to a daily fine of R$10 (ten thousand reais) in the event of non-compliance. Furthermore, according to that decision, the Company must pay indemnification for royalties, to be calculated on settlement. Motions for Clarification were proposed by all parts and Lune's motions for clarification were accepted since an injunctive relief in this stage of the proceedings was deemed applicable. A bill of review appeal was filed in view of the current decision which granted a stay of execution suspending that unfavorable decision until final judgment of the review. A bill of review was filed in view of the sentence handed down on September 30, 2016, by the 4th Chamber of the Court of Justice of the Federal District, in order to annul the lower court sentence and remit the proceedings back to the lower court for a new examination. There is no way to determine at this time the extent of potential liability with respect to this claim as the expertise is in its early stages

 

·       The Company and other wireless carriers are defendants in several lawsuits filed by the Public Prosecutor's Office and consumer associations challenging the defined period for use of prepaid minutes. The plaintiffs allege that the prepaid minutes should not expire after a specific period. Conflicting decisions were handed down by courts on the matter, even though the Company understands that its criteria for the period determination comply with ANATEL standards.

d) Provisions and regulatory contingencies

 

 

 

 

 

 

  Amounts involved 

 

 

 

Company / Consolidated

Nature/Degree of Risk

 

 

 

 

09/30/19

 

12/31/18

Provisions - probable losses

 

 

 

 

           1,160,440

 

           1,022,216

Possible losses

 

 

 

 

           5,347,552

 

           6,119,136

 

 

d.1) Provision for regulatory proceedings assessed as probable losses

Page 38


 
 

(A free translation of the original in Portuguese)

 

Telefônica Brasil S. A.

NOTES TO THE QUARTERLY FINANCIAL STATEMENTS

Three and nine-month periods ended September 30, 2019

(In thousands of Reais, unless otherwise stated)

                                           

 

Management, under advice of legal counsel, believes the likelihood of loss of the following regulatory proceedings is probable:

 

The Company is part to administrative proceedings against ANATEL, filed based on an alleged failure to meet sector regulations, and to judicial proceedings to contest mostly sanctions applied by ANATEL at the administrative level.

d.2) Regulatory contingencies assessed as possible losses

 

Management, under advice of legal counsel, believes the likelihood of loss of the following regulatory proceedings is possible:

 

·       The Company is part to administrative proceedings filed by ANATEL alleging non-compliance with the obligations set forth in industry regulations, as well as legal claims which discuss the mostly sanctions applied by ANATEL at the administrative level. At September 30, 2019, the consolidated amount was R$5,347,552 (R$6,119,136 at December 31, 2018).

 

·       Administrative and judicial proceedings discussing payment of a 2% charge on interconnection services revenue arising from the extension of right of use of SMP related radio frequencies. Under clause 1.7 of the authorization term that grants right of use of SMP related radio frequencies, the extension of right of use of such frequencies entails payment every two years, during the extension period (15 years) of a 2% charge calculated on net revenues from the service provider's Basic and Alternative Plans of the service company, determined in the year before that of payment.

 

However, ANATEL determined that in addition to revenues from Service Plans, the charge corresponding to 2% should also be levied on interconnection revenues and other operating revenues, which is not stipulated for in said clauses.

 

Considering, based on the provisions of the Authorization Terms, that revenue from interconnection services should not be included in the calculation of the 2% charge for radiofrequency use right extension, the Company filed administrative and legal proceedings challenging these charges, based on ANATEL's position.

 

·       In May 2018, the Company filed a lawsuit to annul ANATEL's final decision, in March of that year, in the records of the Procedure for Determining Non-Compliance of Obligations (“PADO”) for alleged violations of the fixed telephone regulation.

 

This PADO has been suspended for years due to the negotiations of the Term of Conduct Adjustment ("TAC"), between the Company and ANATEL. By closing the negotiations without agreement, this sanctioning administrative process was reactivated and finalized.

 

In the decision of March 2018, ANATEL understood that the Company had committed several infractions, especially those related to the deadlines for communication of suspension of the service of the users in default and the deadlines for the restoration of the services after payment communication.

 

Page 39


 
 

(A free translation of the original in Portuguese)

 

Telefônica Brasil S. A.

NOTES TO THE QUARTERLY FINANCIAL STATEMENTS

Three and nine-month periods ended September 30, 2019

(In thousands of Reais, unless otherwise stated)

                                           

At September 30, 2019, ANATEL had issued a fine of approximately R$211 million, increasing to approximately R$500 million with interest accruals. At December 31, 2018 these amounts were approximately R$211 million and R$482 million.

The Company considers the fine imposed to be unlawful and not payable based on the following arguments: (i) ANATEL's error in determining the universe of users considered in the fine (the number of affected users is lower than that considered by ANATEL) and; (ii) the calculation of a fine is disproportionate and unfounded.

The fine was not paid. However, there an insurance bond has been presented for the full value for judgment.

The lawsuit is at the lower court and is currently awaiting ANATEL's response to the report prepared by the Company to reduce the amount of the fine.

 

e) Guarantees

 

The Company and its subsidiaries granted guarantees for tax, civil, labor and regulatory proceedings, as follows:

 

  Consolidated 

 

09/30/19

 

12/31/18

 

Property and equipment

 

Judicial deposits and garnishments

 

Letters of guarantee

 

Property and equipment

 

Judicial deposits and garnishments

 

Letters of guarantee

Civil, labor and tax

 81,651

 

 3,714,416

 

 2,654,780

 

 94,641

 

 3,910,014

 

 2,301,210

Total

 81,651

 

 3,714,416

 

 2,654,780

 

 94,641

 

 3,910,014

 

 2,301,210

 

At September 30, 2019, in addition to the guarantees presented above, the Company had amounts under short-term investment withheld by courts (except for loan-related investments) in the consolidated amount of R$62,532 (R$64,461 at December 31, 2018).

 

19) LOANS, FINANCING, DEBENTURES AND LEASES

 

At September 30, 2019, the contractual terms of the loans, financing, debentures and leases are consistent with Note 20) Loans, Financing and Debentures in the financial statements for the year ended December 31, 2018, except for the effects of the initial adoption of IFRS 16 (Note 2.f).

 

Page 40


 
 

(A free translation of the original in Portuguese)

 

Telefônica Brasil S. A.

NOTES TO THE QUARTERLY FINANCIAL STATEMENTS

Three and nine-month periods ended September 30, 2019

(In thousands of Reais, unless otherwise stated)

                                           

 

Consolidated

 

Information as of September 30, 2019

 

09/30/19

 

12/31/18

 

Currency

 

Annual interest rate

 

Maturity

 

Guarantees

 

Current

 

Non-current

 

Total

 

Current

 

Non-current

 

Total

Local currency

 

 

 

 

 

 

 

 

2,683,605

 

11,026,819

 

13,710,424

 

1,367,551

 

4,675,271

 

6,042,822

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial institutions (a)

 

 

 

 

 

 

 

 

  29,501

 

  28,927

 

  58,428

 

  666,213

 

  819,742

 

1,485,955

BNDES FINEM

URTJLP

 

TJLP+ 0 to 4.08%

 

 

 

 

 

  -

 

  -

 

  -

 

  214,012

 

  -

 

  214,012

BNDES FINEM

URTJLP

 

TJLP+ 0 to 3.38%

 

 

 

 

 

  -

 

  -

 

  -

 

  184,200

 

  122,011

 

  306,211

BNDES FINEM

R$

 

5.00%

 

 

 

 

 

  -

 

  -

 

  -

 

  13,403

 

  -

 

  13,403

BNDES FINEM

URTJLP

 

TJLP+ 0 to 3.12%

 

 

 

 

 

  -

 

  -

 

  -

 

  103,486

 

  316,269

 

  419,755

BNDES FINEM

R$

 

4.00% to 6.00%

 

 

 

 

 

  -

 

  -

 

  -

 

  37,837

 

  94,516

 

  132,353

BNDES FINEM

R$

 

Selic Acum. D-2 + 2.32%

 

 

 

 

 

  -

 

 -

 

  -

 

  80,014

 

  245,887

 

  325,901

PSI

R$

 

2.5% to 5.5%

 

Jan-23

 

(1)

 

  14,482

 

324

 

  14,806

 

  18,207

 

  1,263

 

  19,470

BNB

R$

 

7.06% to 10%

 

Aug-22

 

(2)

 

  15,019

 

  28,603

 

  43,622

 

  15,054

 

  39,796

 

  54,850

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Suppliers (b)

R$

 

114.2% to 120.8 of CDI%

 

Oct-20

 

 

 

  709,249

 

  34,897

 

  744,146

 

  524,244

 

  -

 

  524,244

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Debentures (c)

 

 

 

 

 

 

 

 

  109,843

 

3,026,700

 

3,136,543

 

  123,961

 

3,049,949

 

3,173,910

4th issue – Series 3

R$

 

IPCA+4.00%

 

Oct-19

 

(3)

 

  42,829

 

  -

 

  42,829

 

  41,121

 

  -

 

  41,121

1st issue – Minas Comunica

R$

 

IPCA+0.50%

 

Jul-21

 

(3)

 

  28,317

 

  28,317

 

  56,634

 

  26,250

 

  52,499

 

  78,749

5th issue

R$

 

108.25% of CDI

 

Feb-22

 

(3)

 

  16,911

 

1,998,432

 

2,015,343

 

  51,233

 

1,997,694

 

2,048,927

6th issue

R$

 

100% of CDI + 0.24%

 

Nov-20

 

(3)

 

  21,786

 

  999,951

 

1,021,737

 

  5,357

 

  999,756

 

1,005,113

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Leases (d)

R$

 

4.52% / IPCA

 

 

 

 

 

1,835,012

 

7,456,348

 

9,291,360

 

  53,133

 

  339,894

 

  393,027

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contingent consideration (e)

R$

 

Selic

 

 

 

 

 

  -

 

  479,947

 

  479,947

 

  -

 

  465,686

 

  465,686

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency

 

 

 

 

 

 

 

 

  -

 

  -

 

  -

 

  96,615

 

  -

 

  96,615

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial institutions (a)

 

 

 

 

 

 

 

 

  -

 

  -

 

  -

 

  96,615

 

  -

 

  96,615

BNDES FINEM

UMBND

 

ECM + 2.38%

 

 

 

 

 

  -

 

  -

 

  -

 

  96,615

 

  -

 

  96,615

Total

 

 

 

 

 

 

 

 

2,683,605

 

11,026,819

 

13,710,424

 

1,464,166

 

4,675,271

 

6,139,437

 

Guarantees:

 

(1)  Pledge of financed assets.

 

(2)  Bank guarantee provided by Banco Safra in an amount equivalent to 100% of the outstanding financing debt balance. Setting up a liquidity fund represented by financial investments in the amount equivalent to three installments of repayment referenced to the average post-grace period performance. Balances were R$13,055 and R$12,473 at September 30, 2019 and December 31, 2018, respectively.

 

(3)  Unsecured.

 

 

a)  Loans and financing – Financial Institutions

 

Some financing agreements with the financial institutions have lower interest rates than those prevailing in the market. These operations fall within the scope of IAS 20 and thus the subsidies granted up to December 31, 2017 were adjusted to present value and deferred in accordance with the useful lives of the financed assets.

 

The grants at January 1, 2018 adjusted to present value, were recorded in property, plant and equipment and are being depreciated according to the useful lives of the financed assets.

 

b) Financing - Suppliers

 

Under bilateral agreements with suppliers, the Company obtained extension of the terms for payment of trade accounts payable at a cost based on the fixed CDI rate for the corresponding periods, with the net cost equivalent to between 114.2% to 120.8% of the CDI (107.9% to 115.9% of the CDI as at December 31, 2018).

 

c) Debentures

 

Transaction costs in connection with the 4th, 5th and 6th issues, totaling R$3,017 at September 30, 2019 (R$3,951 at December 31, 2018), were treated as a reduction of liabilities as costs to be incurred and are recognized as financial expenses, according to the contractual terms of each issue.

Page 41


 
 

(A free translation of the original in Portuguese)

 

Telefônica Brasil S. A.

NOTES TO THE QUARTERLY FINANCIAL STATEMENTS

Three and nine-month periods ended September 30, 2019

(In thousands of Reais, unless otherwise stated)

                                           

 

d) Leases

 

The Company has agreements classified as lease agreements as a lessee: (i) lease of towers and rooftops arising from sale and leaseback transactions; (ii) lease of Built to Suit ("BTS") sites to install antennas and other equipment and transmission facilities; (iii) lease of information technology equipment and; (iv) lease of infrastructure and transmission facilities associated with the power transmission network. The net carrying amount of the assets has remained unchanged until sale thereof, and a liability is recognized corresponding to the present value of mandatory minimum installments as per the agreement.

 

The amounts recorded in property, plant and equipment are depreciated over the estimated useful lives of the assets or the lease term, whichever is shorter.

 

Balances of lease payments payable, including the effects of the adoption of IFRS 16 (Note 2.f):

 

 

 

 

Consolidated

 

 

 

 

 

09/30/19

 

12/31/18

Nominal value payable

 

 

 

 

         10,640,301

 

              766,215

Unrealized financial expenses

 

 

 

 

         (1,348,941)

 

            (373,188)

Present value payable

 

 

 

 

           9,291,360

 

              393,027

 

 

 

 

 

 

 

 

Current

 

 

 

 

           1,835,012

 

                53,133

Non-current

 

 

 

 

           7,456,348

 

              339,894

 

The following is a schedule of the amounts payable on leases as at September 30, 2019, settled in nominal amounts and at present value:

 

 

 

 

Consolidated

Year

 

 

 

 

Nominal value payable

 

Present value payable

1 to 12 months

 

 

 

 

           2,203,593

 

           1,835,012

13 to 24 months

 

 

 

 

           1,934,921

 

           1,658,600

25 to 36 months

 

 

 

 

           1,652,722

 

           1,441,021

37 to 48 months

 

 

 

 

           1,426,927

 

           1,266,968

49 to 60 months

 

 

 

 

           1,032,652

 

              920,027

From 61 months

 

 

 

 

           2,389,486

 

           2,169,732

Total

 

 

 

 

         10,640,301

 

           9,291,360

 

The weighted average annual interest rate on lease contracts at September 30, 2019 was 4.52%, with an average maturity of 5.88 years.

 

There were no unsecured residual values resulting in benefits to the lessor or contingent payments recognized as revenue at September 30, 2019 and December 31, 2018.

 

e) Contingent consideration

 

As part of the Purchase and Sale Agreement and Other Covenants executed by and between the Company and Vivendi to acquire all shares in GVTPart., a contingent consideration relating to the judicial deposit made by GVT for the monthly installments of deferred income tax and social contribution on goodwill amortization was agreed, arising from the corporate restructuring process completed by GVT in 2013. If these funds are realized (being reimbursed, refunded, or via netting), they will be returned to Vivendi, as long as they are obtained in a final unappealable decision. Reimbursement will be made within 15 years and this amount is subject to monthly restatement at the SELIC rate.

 

Page 42


 
 

(A free translation of the original in Portuguese)

 

Telefônica Brasil S. A.

NOTES TO THE QUARTERLY FINANCIAL STATEMENTS

Three and nine-month periods ended September 30, 2019

(In thousands of Reais, unless otherwise stated)

                                           

f) Repayment schedule

 

At September 30, 2019, the breakdown of non-current loans, financing, debentures, leases and contingent consideration by year of maturity was as follows:

 

 

 

Consolidated

Year

Loans and financing - financial institutions

 

Financing - suppliers

 

Debentures

 

Leases

 

Contingent consideration

 

Total

13 to 24 months

              15,184

 

              34,897

 

         2,026,700

 

         1,658,600

 

                          -

 

         3,735,381

25 to 36 months

              13,727

 

                        -

 

         1,000,000

 

         1,441,021

 

                          -

 

         2,454,748

37 to 48 months

                     16

 

                        -

 

                        -

 

         1,266,968

 

                          -

 

         1,266,984

49 to 60 months

                        -

 

                        -

 

                        -

 

            920,027

 

                          -

 

            920,027

From 61 months

                        -

 

                        -

 

                        -

 

         2,169,732

 

              479,947

 

         2,649,679

Total

              28,927

 

              34,897

 

         3,026,700

 

         7,456,348

 

              479,947

 

       11,026,819

 

g)  Covenants

 

Loans and financing with financial institutions and debentures carry specific covenants involving a penalty in the event of breach of contract. A breach of contract as provided for in the agreements with the institutions listed above is characterized as non-compliance with covenants (analyzed on a quarterly, half-yearly or yearly basis), being a breach of a contractual clause, resulting in the early maturity of the contract.

 

At September 30, 2019 and December 31, 2018, the Company was in compliance with all economic and financial indices.

 

 

 

 

h)  Changes

 

Changes in loans and financing, debentures, leases agreements and contingent considerations:

Page 43


 
 

(A free translation of the original in Portuguese)

 

Telefônica Brasil S. A.

NOTES TO THE QUARTERLY FINANCIAL STATEMENTS

Three and nine-month periods ended September 30, 2019

(In thousands of Reais, unless otherwise stated)

 

 

 

Consolidated

 

 

Loans and financing

 

Debentures

 

Leases

 

Financing - suppliers

 

Contingent consideration

 

Total

Balance at 12.31.17

 

         2,502,346

 

       4,520,739

 

          385,460

 

            607,152

 

              446,144

 

       8,461,841

Additions

 

                        -

 

                      -

 

            13,453

 

            349,715

 

                          -

 

          363,168

Government grants (Note 20)

 

                   (40)

 

                      -

 

                      -

 

                        -

 

                          -

 

                 (40)

Financial charges (Note 26)

 

            132,257

 

          193,211

 

            15,255

 

              24,766

 

                14,882

 

          380,371

Issue costs

 

                        -

 

              1,121

 

                      -

 

                        -

 

                          -

 

              1,121

Foreign exchange variation (Note 26)

 

              34,062

 

                      -

 

                      -

 

                        -

 

                          -

 

            34,062

Write-offs (payments)

 

          (843,140)

 

     (1,556,425)

 

          (37,649)

 

          (497,672)

 

                          -

 

     (2,934,886)

Balance at 09.30.18

 

         1,825,485

 

       3,158,646

 

          376,519

 

            483,961

 

              461,026

 

       6,305,637

Additions

 

                        -

 

                      -

 

              5,219

 

            156,682

 

                          -

 

          161,901

Financial charges

 

              37,514

 

            49,204

 

            30,246

 

                8,403

 

                  4,660

 

          130,027

Issue costs

 

                        -

 

                 350

 

                      -

 

                        -

 

                          -

 

                 350

Foreign exchange variation

 

              (5,214)

 

                      -

 

                      -

 

                        -

 

                          -

 

            (5,214)

Write-offs (payments)

 

          (275,215)

 

          (34,290)

 

          (18,957)

 

          (124,802)

 

                          -

 

        (453,264)

Balance at 12.31.18

 

         1,582,570

 

       3,173,910

 

          393,027

 

            524,244

 

              465,686

 

       6,139,437

Initial adoptions IFRS 16 in 01.01.19 (Note 1 f)

 

                        -

 

                      -

 

       8,618,072

 

                        -

 

                          -

 

       8,618,072

Additions

 

                        -

 

                      -

 

       1,421,057

 

            563,052

 

                          -

 

       1,984,109

Government grants (Note 20)

 

              15,787

 

                      -

 

                      -

 

                        -

 

                          -

 

            15,787

Financial charges (Note 26)

 

            110,164

 

          156,235

 

          342,068

 

              30,772

 

                14,261

 

          653,500

Issue costs

 

                        -

 

                 934

 

                      -

 

                        -

 

                          -

 

                 934

Foreign exchange variation (Note 26)

 

              (1,111)

 

                      -

 

                      -

 

                        -

 

                          -

 

            (1,111)

Write-offs (cancellation of contracts)

 

                        -

 

                      -

 

          (12,065)

 

                        -

 

                          -

 

          (12,065)

Write-offs (payments)

 

       (1,648,982)

 

        (194,536)

 

     (1,470,799)

 

          (373,922)

 

                          -

 

     (3,688,239)

Balance at 09.30.19

 

              58,428

 

       3,136,543

 

       9,291,360

 

            744,146

 

              479,947

 

     13,710,424

 

i)  Additions and payments

 

Summary of additions and payments:

 

Consolidated

 

 

 

Write-offs (payments)

 

Additions

 

Principal

 

Financial charges

 

Total

Loans and financing

                      -

 

     (1,554,679)

 

          (94,303)

 

     (1,648,982)

  BNDES

                      -

 

     (1,543,487)

 

          (91,791)

 

     (1,635,278)

  BNB

                      -

 

          (11,192)

 

            (2,512)

 

          (13,704)

Debêntures

                      -

 

          (25,583)

 

        (168,953)

 

        (194,536)

   1st issue – Minas Comunica

                      -

 

          (25,583)

 

            (1,761)

 

          (27,344)

   5th issue

                      -

 

                      -

 

        (135,242)

 

        (135,242)

   6th issue

                      -

 

                      -

 

          (31,950)

 

          (31,950)

Suppliers

          563,052

 

        (349,725)

 

          (24,197)

 

        (373,922)

Leases (1)

     10,039,129

 

     (1,164,609)

 

        (306,190)

 

     (1,470,799)

Total

     10,602,181

 

     (3,094,596)

 

        (593,643)

 

     (3,688,239)

 

(1) Additions include the amount of the initial adoption of IFRS 16 (Note 2.f).

Page 44


 
 

(A free translation of the original in Portuguese)

 

Telefônica Brasil S. A.

NOTES TO THE QUARTERLY FINANCIAL STATEMENTS

Three and nine-month periods ended September 30, 2019

(In thousands of Reais, unless otherwise stated)

 

20)  DEFERRED REVENUE

 

 

 

 

Consolidated

 

 

 

 

 

09/30/19

 

12/31/18

Disposal of PP&E (1)

 

 

 

 

              101,978

 

                89,835

Grants (2)

 

 

 

 

                64,395

 

                94,335

Contractual Liabilities - IFRS 15 (3)

 

 

 

 

              497,035

 

              532,207

Other (4)

 

 

 

 

                59,447

 

                59,658

Total

 

 

 

 

              722,855

 

              776,035

 

 

 

 

 

 

 

 

Current

 

 

 

 

              517,859

 

              525,509

Non-current

 

 

 

 

              204,996

 

              250,526

 

 

(1)  Includes the net balances of the residual values from sale of non-strategic towers and rooftops, transferred to income as the conditions for recognition are fulfilled and a portion of the amount arising from the sale of the Tamboré and Curitiba (CIC) data centers to a company controlled by Asterion Industrial Partners SGEIC, S.A, to be recognized in profit or loss over 10 years, pursuant to contractual conditions.

 

(2)  This refers to: i) government subsidy arising from funds obtained from credit lines to be used in the acquisition of domestic equipment, which have been amortized over the useful life cycle of the equipment; and ii) subsidies arising from projects related to state taxes, which are being amortized over the contractual period.

 

(3)  Refers to the balance of contractual liabilities of customers, being deferred to the extent that they relate to performance obligations that are satisfied over time.

 

(4)  Includes amounts of the reimbursement for costs for leaving radio frequency sub-bands 2,500MHz to 2,690MHz due to cancellation of the Multichannel Multipoint Distribution Service.

 

Changes in contractual liabilities (IFRS 15), mainly related to the sale of prepaid credits:
 

Balances as of 12.31.18

 

 

 

 

 

 

                  532,207

   Additions

 

 

 

 

 

 

               5,126,111

   Write-offs, net

 

 

 

 

 

 

             (5,161,283)

Balances as of 09.30.19

 

 

 

 

 

 

                  497,035

 

 

 

 

 

 

 

 

Current

 

 

 

 

 

 

                  474,261

Non-current

 

 

 

 

 

 

                    22,774

 

 

Page 45


 
 

(A free translation of the original in Portuguese)

 

Telefônica Brasil S. A.

NOTES TO THE QUARTERLY FINANCIAL STATEMENTS

Three and nine-month periods ended September 30, 2019

(In thousands of Reais, unless otherwise stated)

                                           

21) OTHER LIABILITIES

 

 Company

 

Consolidated

 

09/30/19

 

12/31/18

 

09/30/19

 

12/31/18

Liabilities with ANATEL (1)

              292,071

 

              346,950

 

              292,071

 

              346,950

Liabilities with related parties (Note 27)

              124,316

 

                25,198

 

              132,367

 

                31,716

Third-party withholdings (2)

              127,392

 

              117,615

 

              130,829

 

              120,711

Surplus from post-employment benefit plans (Note 29)

              719,383

 

              674,948

 

              726,339

 

              679,478

Amounts to be refunded to subscribers

                43,708

 

                56,941

 

                43,369

 

                56,897

Other liabilities

                36,043

 

                61,279

 

                36,620

 

                61,957

Total

           1,342,913

 

           1,282,931

 

           1,361,595

 

           1,297,709

 

 

 

 

 

 

 

 

Current

              351,672

 

              357,535

 

              363,767

 

              368,376

Non-current

              991,241

 

              925,396

 

              997,828

 

              929,333

 

 

(1)  Includes the cost of renewing STFC and SMP licenses.

(2)  This refers to payroll withholdings and taxes withheld from pay-outs of interest on equity and on provision of services.

 

22)  EQUITY

 

a) Capital

 

Pursuant to its Articles of Incorporation, the Company is authorized to increase its share capital up to 1,850,000,000 common and preferred shares. The Board of Directors is the competent body to decide on any increase and consequent issue of new shares within the authorized capital limit.

 

Brazilian Corporation Law (Law nº 6404/76, Article 166, item IV) - establishes that capital may be increased by means of a Special Shareholders’ Meeting Resolution by modifying the Articles of Incorporation, if the authorized capital increase limit has been reached.

 

Capital increases are not necessarily in proportion to the number of shares in existing classes, however the number of non-voting or restricted-voting preferred shares must not exceed two-thirds of total shares issued.

 

Preferred shares are non-voting, except for cases set forth in Articles 9 and 10 of the Articles of Incorporation but have priority in the event of reimbursement of capital, without premium, and are entitled to dividends 10% higher than those paid on common shares, as per Article 7 of the Company's Articles of Incorporation and item II, paragraph 1, Article 17 of Law No. 6404/76.

 

Preferred shares are also entitled to full voting rights if the Company fails to pay the minimum dividend to which they are entitled for three consecutive financial years. This right continues until payment of said dividend.

 

Subscribed and paid-in capital at September 30, 2019 and December 31, 2018 amounted to R$63,571,416, divided into shares without par value, held as follows:

 

Page 46


 
 

(A free translation of the original in Portuguese)

 

Telefônica Brasil S. A.

NOTES TO THE QUARTERLY FINANCIAL STATEMENTS

Three and nine-month periods ended September 30, 2019

(In thousands of Reais, unless otherwise stated)

                                           

 

 

Common Shares

 

Preferred Shares

 

Grand Total

Shareholders

Number

 

%

 

Number

 

%

 

Number

 

%

Controlling Group

540,033,264

 

94.47%

 

704,207,855

 

62.91%

 

1,244,241,119

 

73.58%

   Telefónica Latinoamérica Holding

46,746,635

 

8.18%

 

360,532,578

 

32.21%

 

407,279,213

 

24.09%

   Telefónica

198,207,608

 

34.67%

 

305,122,195

 

27.26%

 

503,329,803

 

29.76%

   SP Telecomunicações Participações

294,158,155

 

51.46%

 

38,537,435

 

3.44%

 

332,695,590

 

19.67%

   Telefónica Chile

920,866

 

0.16%

 

15,647

 

0.00%

 

936,513

 

0.06%

Other shareholders

29,320,789

 

5.13%

 

415,131,868

 

37.09%

 

444,452,657

 

26.28%

Treasury Shares

2,290,164

 

0.40%

 

983

 

0.00%

 

2,291,147

 

0.14%

Total shares

571,644,217

 

100.00%

 

1,119,340,706

 

100.00%

 

1,690,984,923

 

100.00%

   Treasury Shares

(2,290,164)

 

 

 

(983)

 

 

 

(2,291,147)

 

 

Total shares outstanding

569,354,053

 

 

 

1,119,339,723

 

 

 

1,688,693,776

 

 

 

b) Capital reserves

 

The information on the capital reserves, is the same as in Note 23) Equity, item b), disclosed in the financial statements for the year ended December 31, 2018, except for the effects of the acquisition of TIS on September 26, 2019 (Note 1.c.1).

 

c) Income reserves

 

The information on the income reserves, is the same as in Note 23) Equity, item c), disclosed in the financial statements for the year ended December 31, 2018.

 

d) Dividend and interest on equity (IOE)

 

The amounts of IOE are calculated and presented net of Withholding Income Tax (IRRF). Exempt shareholders received the full IOE amount, without withholding income tax at source.

 

The gross and net values for the preferred shares are 10% higher than those attributed to each common share, as per article 7 of the Company's Articles of Incorporation.

 

d.1) Interim interest on equity for 2019

 

In meetings of the Board of Directors of the Company, ad referendum the Annual Shareholders’ Meeting approved the allocations of interim interest on equity, for 2019, pursuant to Article 28 of the Company's Bylaws, Article 9 of Law 9249/95 and CVM Deliberation 638/12, which will be allocated to the mandatory minimum dividend for the year of 2019, as follows:

 

 

 

Dates

 

Gross Amount

 

Net Value

 

Amount per Share

Nature

 

Approval

 

Credit

 

Beginning of Payment

 

Common

 

Preferred

 

Total

 

Common

 

Preferred

 

Total

 

Common

 

Preferred

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

IOE

 

02/15/19

 

02/28/19

 

Until 12/31/20

 

  221,338

 

  478,662

 

  700,000

 

  188,137

 

  406,863

 

  595,000

 

 0.33044031480

 

 0.36348434628

IOE

 

04/17/19

 

04/30/19

 

Until 12/31/20

 

  180,233

 

  389,767

 

  570,000

 

  153,198

 

  331,302

 

  484,500

 

 0.26907282777

 

 0.29598011054

IOE

 

06/17/19

 

06/28/19

 

Until 12/31/18

 

  306,079

 

  661,921

 

  968,000

 

  260,167

 

  562,633

 

  822,800

 

 0.45695174961

 

 0.50264692458

Total

 

Total

 

  707,650

 

   1,530,350

 

2,238,000

 

  601,503

 

1,300,798

 

1,902,300

 

 

 

 

 

d.2) Dividends and interest on equity for 2018

 

On April 11, 2019, the Annual General Meeting unanimously approved the proposal for the allocation of interest on equity and dividends for the year ended December 31, 2018. On that same date, the Company's Board of Executive Officers informed shareholders the dates for the payment of these interest on shareholders' equity and dividends, as follows:

 

Page 47


 
 

(A free translation of the original in Portuguese)

 

Telefônica Brasil S. A.

NOTES TO THE QUARTERLY FINANCIAL STATEMENTS

Three and nine-month periods ended September 30, 2019

(In thousands of Reais, unless otherwise stated)

                                           

 

 

 

Dates

 

Gross Amount

 

Net Value

 

Amount per Share

Nature

 

Approval

 

Credit

 

Beginning of Payment

 

Common

 

Preferred

 

Total

 

Common

 

Preferred

 

Total

 

Common

 

Preferred

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

IOE

 

06/18/18

 

06/29/18

 

08/20/19

 

  126,479

 

  273,521

 

  400,000

 

  107,507

 

  232,493

 

  340,000

 

 0.18882303703

 

 0.20770534073

IOE

 

09/05/18

 

09/17/18

 

08/20/19

 

  885,353

 

1,914,647

 

2,800,000

 

  752,550

 

1,627,450

 

2,380,000

 

 1.32176125923

 

 1.45393738515

IOE

 

12/04/18

 

12/17/18

 

12/17/19

 

  426,867

 

  923,133

 

1,350,000

 

  362,837

 

  784,663

 

1,147,500

 

 0.63727774998

 

 0.70100552498

Dividends

 

04/11/19

 

12/17/18

 

12/17/19

 

  780,592

 

1,688,092

 

2,468,684

 

  780,592

 

1,688,092

 

2,468,684

 

 1.37101294520

 

 1.50811423972

Total

 

Total

 

2,219,291

 

4,799,393

 

7,018,684

 

2,003,486

 

4,332,698

 

6,336,184

 

 

 

 

 

d.3) Unclaimed dividends and interest on equity

 

Pursuant to Article 287, paragraph II, item “a” of Law No. 6404, of December 15, 1976, the dividends and interest on equity unclaimed by shareholders are subject to the statute of limitation three years, as from the initial payment date. The Company reverses the amounts of unclaimed dividends and IOE to equity once the statute of limitation occurred.

 

In the nine-month period ended September 30, 2019, the Company reversed dividends subject to the statute of limitation in the amount of R$31,335.

 

e) Other comprehensive income

 

Financial assets at fair value through other comprehensive income: These refer to changes in fair value of financial assets available for sale.

 

Derivative financial instruments: These refer to the effective part of cash flow hedges up to the balance sheet date.

 

Currency translation effects for foreign investments: This refers to currency translation differences arising from the translation of financial statements of Aliança (joint venture).

Changes in other comprehensive income were as follows:

 

Consolidated

 

Financial assets at fair value through other comprehensive income

 

Derivative transactions

 

Currency translation effects - foreign investments

 

Total

Balances at 12/31/17

  (8,658)

 

1,954

 

  28,032

 

  21,328

Translation gains

  -

 

  -

 

  14,136

 

  14,136

Losses from future contracts

  -

 

  (1,302)

 

  -

 

  (1,302)

Losses on financial assets

(269)

 

  -

 

  -

 

(269)

Balances at 09/30/18

  (8,927)

 

  652

 

  42,168

 

  33,893

Translation losses

  -

 

  -

 

  (4,209)

 

  (4,209)

Losses from future contracts

  -

 

(316)

 

  -

 

(316)

Losses on financial assets

(143)

 

  -

 

  -

 

(143)

Balances at 12/31/18

  (9,070)

 

  336

 

  37,959

 

  29,225

Translation gains

  -

 

  -

 

2,205

 

2,205

Losses from future contracts

  -

 

(336)

 

  -

 

(336)

Gains on financial assets

  24

 

  -

 

  -

 

  24

Balances at 09/30/19

  (9,046)

 

  -

 

  40,164

 

  31,118

 

f) Company Share Repurchase Program

 

Page 48


 
 

(A free translation of the original in Portuguese)

 

Telefônica Brasil S. A.

NOTES TO THE QUARTERLY FINANCIAL STATEMENTS

Three and nine-month periods ended September 30, 2019

(In thousands of Reais, unless otherwise stated)

                                           

At December 7, 2018 the Company's Board of Directors, in accordance with Article 17, item XV of the Bylaws, approved a program for the repurchase of common and preferred shares pursuant to CVM Instruction 567, of September 17, 2015. The acquisition of own shares was made with the intention of subsequently cancelling, selling or holding in treasury, without reducing the capital stock, thereby increasing shareholder value through the efficient application of available resources in cash and optimize the Company's capital allocation.

 

The repurchase will be made through the use of the balance of capital reserve included in the balance sheet of September 30, 2018.


This program will be in force until June 6, 2020, with the acquisitions made on B3, at market prices, observing the legal and regulatory limits. The maximum amounts authorized for acquisition are 583,422 common shares and 37,736,465 preferred shares.

 

During the nine-month period ended September 30, 2019, there were no acquisitions of shares within the Company's share repurchase program to be held in treasury for further sale and / or cancellation.

 

g) Earnings per share

 

Basic and diluted earnings per share were calculated by dividing profit attributed to the Company’s shareholders by the weighted average number of outstanding common and preferred shares.

 

The following table shows the calculation of earnings per share in the three and nine-month periods ended September 30, 2019 and 2018:

 

 

 

Company

 

Three-month periods ended

 

Nine-month periods ended

 

09.30.19

 

09.30.18

 

09.30.19

 

09.30.18

Net income for the period attributable to shareholders:

                  965,113

 

               3,177,264

 

               3,726,760

 

               7,441,580

   Common shares

                  305,167

 

               1,004,643

 

               1,178,392

 

               2,353,009

   Preferred shares

                  659,946

 

               2,172,621

 

               2,548,368

 

               5,088,571

 

 

 

 

 

 

 

 

Number of shares, in thousands:

               1,688,694

 

               1,688,694

 

               1,688,694

 

               1,688,694

    Weighted average number of outstanding common shares for the period

                  569,354

 

                  569,354

 

                  569,354

 

                  569,354

    Weighted average number of outstanding preferred shares for the period

               1,119,340

 

               1,119,340

 

               1,119,340

 

               1,119,340

 

 

 

 

 

 

 

 

Basic and diluted earnings per share:

 

 

 

 

 

 

 

   Common shares (R$)

                        0.54

 

                        1.76

 

                        2.07

 

                        4.13

   Preferred shares (R$)

                        0.59

 

                        1.94

 

                        2.28

 

                        4.55

 

 

Page 49


 
 

(A free translation of the original in Portuguese)

 

Telefônica Brasil S. A.

NOTES TO THE QUARTERLY FINANCIAL STATEMENTS

Three and nine-month periods ended September 30, 2019

(In thousands of Reais, unless otherwise stated)

                                           

23)  NET OPERATING REVENUE

 

 

Company

 

Three-month periods ended

 

Nine-month periods ended

 

09.30.19

 

09.30.18

 

09.30.19

 

09.30.18

Gross operating revenue

                 16,386,359

 

                 14,982,372

 

                 48,948,582

 

                 43,753,520

   Services (1)

                 14,789,635

 

                 13,979,332

 

                 44,559,614

 

                 40,835,412

   Sale of goods (2)

                   1,596,724

 

                   1,003,040

 

                   4,388,968

 

                   2,918,108

 

 

 

 

 

 

 

 

Deductions from gross operating revenue

                 (5,531,151)

 

                 (5,400,293)

 

               (16,657,387)

 

               (16,009,152)

   Tax

                 (3,453,128)

 

                 (3,377,629)

 

               (10,348,977)

 

               (10,320,152)

      Services

                 (3,166,243)

 

                 (3,238,013)

 

                 (9,484,659)

 

                 (9,883,374)

      Sale of goods

                    (286,885)

 

                    (139,616)

 

                    (864,318)

 

                    (436,778)

 

 

 

 

 

 

 

 

   Discounts granted and return of goods

                 (2,078,023)

 

                 (2,022,664)

 

                 (6,308,410)

 

                 (5,689,000)

      Services

                 (1,501,468)

 

                 (1,649,736)

 

                 (4,934,565)

 

                 (4,562,318)

      Sale of goods

                    (576,555)

 

                    (372,928)

 

                 (1,373,845)

 

                 (1,126,682)

 

 

 

 

 

 

 

 

Net operating revenue

                 10,855,208

 

                   9,582,079

 

                 32,291,195

 

                 27,744,368

   Services

                 10,121,924

 

                   9,091,583

 

                 30,140,390

 

                 26,389,720

   Sale of goods

                      733,284

 

                      490,496

 

                   2,150,805

 

                   1,354,648

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated

 

Three-month periods ended

 

Nine-month periods ended

 

09.30.19

 

09.30.18

 

09.30.19

 

09.30.18

Gross operating revenue

                 16,606,138

 

                 16,328,913

 

                 49,634,478

 

                 49,007,165

   Services (1)

                 15,009,016

 

                 15,221,155

 

                 45,245,200

 

                 45,787,559

   Sale of goods (2)

                   1,597,122

 

                   1,107,758

 

                   4,389,278

 

                   3,219,606

 

 

 

 

 

 

 

 

Deductions from gross operating revenue

                 (5,559,390)

 

                 (5,564,011)

 

               (16,743,162)

 

               (16,629,904)

   Tax

                 (3,481,365)

 

                 (3,539,756)

 

               (10,434,697)

 

               (10,935,469)

      Services

                 (3,194,390)

 

                 (3,387,069)

 

                 (9,570,289)

 

               (10,459,690)

      Sale of goods

                    (286,975)

 

                    (152,687)

 

                    (864,408)

 

                    (475,779)

 

 

 

 

 

 

 

 

   Discounts granted and return of goods

                 (2,078,025)

 

                 (2,024,255)

 

                 (6,308,465)

 

                 (5,694,435)

      Services

                 (1,501,491)

 

                 (1,651,326)

 

                 (4,934,641)

 

                 (4,567,751)

      Sale of goods

                    (576,534)

 

                    (372,929)

 

                 (1,373,824)

 

                 (1,126,684)

 

 

 

 

 

 

 

 

Net operating revenue

                 11,046,748

 

                 10,764,902

 

                 32,891,316

 

                 32,377,261

   Services

                 10,313,135

 

                 10,182,760

 

                 30,740,270

 

                 30,760,118

   Sale of goods

                      733,613

 

                      582,142

 

                   2,151,046

 

                   1,617,143

 

(1)  These include telephone services, use of interconnection network, data and SVA services, cable TV and other services.

 

(2)  These include sale of goods (handsets, SIM cards and accessories) and equipment of “Soluciona TI”.

 

No single customer accounted for more than 10% of gross operating revenues in the three and nine-month periods ended September 30, 2019 and 2018.

 

All amounts in net income are included in the income and social contribution tax bases.

 

Page 50


 
 

(A free translation of the original in Portuguese)

 

Telefônica Brasil S. A.

NOTES TO THE QUARTERLY FINANCIAL STATEMENTS

Three and nine-month periods ended September 30, 2019

(In thousands of Reais, unless otherwise stated)

                                           

24) OPERATING COSTS AND EXPENSES

 

 

Company

 

Three-month periods ended

 

09.30.19

 

09.30.18

 

Cost of sales and services

 

Selling expenses

 

General and administrative expenses

 

Total

 

Cost of sales and services

 

Selling expenses

 

General and administrative expenses

 

Total

Personnel

  (184,216)

 

  (626,297)

 

  (109,697)

 

  (920,210)

 

  (180,682)

 

  (540,965)

 

  (86,196)

 

  (807,843)

Third-party services

(1,649,946)

 

(1,652,224)

 

  (287,535)

 

(3,589,705)

 

(1,462,284)

 

(1,632,168)

 

  (329,947)

 

(3,424,399)

Rental, insurance, condominium and connection means

  (379,173)

 

  (17,090)

 

  (15,080)

 

  (411,343)

 

  (695,513)

 

  (30,743)

 

  (43,013)

 

  (769,269)

Taxes, charges and contributions

  (408,295)

 

  (10,503)

 

  (6,845)

 

  (425,643)

 

  (363,293)

 

  (7,206)

 

  (7,873)

 

  (378,372)

Estimated impairment losses on accounts receivable

  -

 

  (433,647)

 

  -

 

  (433,647)

 

 -

 

  (347,161)

 

  -

 

  (347,161)

Depreciation and amortization

(2,102,989)

 

  (389,212)

 

  (211,938)

 

(2,704,139)

 

(1,555,085)

 

  (337,906)

 

  (132,854)

 

(2,025,845)

Cost of goods sold

  (729,236)

 

  -

 

  -

 

  (729,236)

 

  (527,903)

 

  -

 

  -

 

  (527,903)

Materials and other operating costs and expenses

  (6,654)

 

  (38,060)

 

  (9,112)

 

  (53,826)

 

  (1,337)

 

  (19,937)

 

  (3,451)

 

  (24,725)

Total

(5,460,509)

 

(3,167,033)

 

  (640,207)

 

(9,267,749)

 

(4,786,097)

 

(2,916,086)

 

  (603,334)

 

(8,305,517)

 

 

Company

 

Nine-month periods ended

 

09.30.19

 

09.30.18

 

Cost of sales and services

 

Selling expenses

 

General and administrative expenses

 

Total

 

Cost of sales and services

 

Selling expenses

 

General and administrative expenses

 

Total

Personnel

  (539,409)

 

(1,900,171)

 

  (278,904)

 

(2,718,484)

 

  (565,082)

 

(1,664,521)

 

  (305,595)

 

(2,535,198)

Third-party services

(4,998,890)

 

(5,069,446)

 

  (840,333)

 

(10,908,669)

 

(4,409,076)

 

(5,036,242)

 

  (959,720)

 

(10,405,038)

Rental, insurance, condominium and connection means

(1,050,512)

 

  (59,599)

 

  (44,365)

 

(1,154,476)

 

(2,150,009)

 

  (105,241)

 

  (135,227)

 

(2,390,477)

Taxes, charges and contributions

(1,215,650)

 

  (32,157)

 

 (21,109)

 

(1,268,916)

 

(1,185,447)

 

  (22,015)

 

  (27,542)

 

(1,235,004)

Estimated impairment losses on accounts receivable (Note 4)

  -

 

(1,243,560)

 

  -

 

(1,243,560)

 

 -

 

(1,011,896)

 

  -

 

(1,011,896)

Depreciation and amortization

(6,214,033)

 

(1,131,003)

 

  (583,448)

 

(7,928,484)

 

(4,635,480)

 

(1,008,345)

 

  (375,867)

 

(6,019,692)

Cost of goods sold

(2,235,203)

 

  -

 

  -

 

(2,235,203)

 

(1,465,443)

 

  -

 

  -

 

(1,465,443)

Materials and other operating costs and expenses

  (21,952)

 

  (105,393)

 

  (23,101)

 

  (150,446)

 

  (28,669)

 

 (144,710)

 

  (12,500)

 

  (185,879)

Total

(16,275,649)

 

(9,541,329)

 

(1,791,260)

 

(27,608,238)

 

(14,439,206)

 

(8,992,970)

 

(1,816,451)

 

(25,248,627)

 

 

Consolidated

 

Three-month periods ended

 

09.30.19

 

09.30.18

 

Cost of sales and services

 

Selling expenses

 

General and administrative expenses

 

Total

 

Cost of sales and services

 

Selling expenses

 

General and administrative expenses

 

Total

Personnel

  (192,317)

 

  (631,357)

 

  (112,474)

 

  (936,148)

 

  (211,665)

 

  (622,594)

 

  (103,965)

 

  (938,224)

Third-party services

(1,664,565)

 

(1,653,438)

 

  (288,872)

 

(3,606,875)

 

(1,664,041)

 

(1,741,798)

 

  (320,139)

 

(3,725,978)

Rental, insurance, condominium and connection means

  (380,625)

 

  (17,090)

 

  (15,337)

 

  (413,052)

 

  (696,897)

 

  (30,791)

 

  (48,202)

 

  (775,890)

Taxes, charges and contributions

  (411,262)

 

  (10,503)

 

  (7,062)

 

  (428,827)

 

  (372,828)

 

  (7,158)

 

  (7,911)

 

  (387,897)

Estimated impairment losses on accounts receivable

  -

 

  (442,373)

 

  -

 

  (442,373)

 

  -

 

  (402,214)

 

  -

 

  (402,214)

Depreciation and amortization

(2,103,256)

 

  (389,424)

 

  (212,286)

 

(2,704,966)

 

(1,559,900)

 

  (338,214)

 

  (136,652)

 

(2,034,766)

Cost of goods sold

  (729,615)

 

  -

 

  -

 

  (729,615)

 

  (595,329)

 

  -

 

  -

 

  (595,329)

Materials and other operating costs and expenses

  (7,233)

 

  (38,143)

 

  (9,371)

 

  (54,747)

 

  (1,647)

 

  (20,071)

 

  (7,869)

 

  (29,587)

Total

(5,488,873)

 

(3,182,328)

 

  (645,402)

 

(9,316,603)

 

(5,102,307)

 

(3,162,840)

 

  (624,738)

 

(8,889,885)

 

 

Consolidated

 

Nine-month periods ended

 

09.30.19

 

09.30.18

 

Cost of sales and services

 

Selling expenses

 

General and administrative expenses

 

Total

 

Cost of sales and services

 

Selling expenses

 

General and administrative expenses

 

Total

Personnel

  (560,710)

 

(1,915,866)

 

  (285,504)

 

(2,762,080)

 

  (669,227)

 

(1,922,923)

 

  (369,584)

 

(2,961,734)

Third-party services

(5,039,747)

 

(5,087,030)

 

  (843,593)

 

(10,970,370)

 

(5,035,605)

 

(5,277,842)

 

  (936,303)

 

(11,249,750)

Rental, insurance, condominium and connection means

(1,052,505)

 

  (59,599)

 

  (44,812)

 

(1,156,916)

 

(2,152,727)

 

  (106,479)

 

  (154,447)

 

(2,413,653)

Taxes, charges and contributions

(1,224,798)

 

  (32,157)

 

 (21,465)

 

(1,278,420)

 

(1,214,808)

 

  (22,051)

 

  (27,663)

 

(1,264,522)

Estimated impairment losses on accounts receivable (Note 4)

  -

 

(1,265,603)

 

  -

 

(1,265,603)

 

 -

 

(1,168,936)

 

  -

 

(1,168,936)

Depreciation and amortization (1)

(6,214,751)

 

(1,131,728)

 

  (584,057)

 

(7,930,536)

 

(4,652,088)

 

(1,008,771)

 

  (385,057)

 

(6,045,916)

Cost of goods sold

(2,235,582)

 

  -

 

  -

 

(2,235,582)

 

(1,670,801)

 

  -

 

  -

 

(1,670,801)

Materials and other operating costs and expenses

  (23,795)

 

  (105,944)

 

  (23,763)

 

  (153,502)

 

  (31,697)

 

 (146,226)

 

  (23,336)

 

  (201,259)

Total

(16,351,888)

 

(9,597,927)

 

(1,803,194)

 

(27,753,009)

 

(15,426,953)

 

(9,653,228)

 

(1,896,390)

 

(26,976,571)

 

Page 51


 
 

(A free translation of the original in Portuguese)

 

Telefônica Brasil S. A.

NOTES TO THE QUARTERLY FINANCIAL STATEMENTS

Three and nine-month periods ended September 30, 2019

(In thousands of Reais, unless otherwise stated)

                                           

(1)  Includes the consolidated amounts of R$1,390,772 and R$22,138 in the nine-month periods ended September 30, 2019 and 2018, respectively, related to the leases depreciation.

 

 

25)  OTHER OPERATING INCOME (EXPENSES)

 

 

 

Company

 

Three-month periods ended

 

Nine-month periods ended

 

09.30.19

 

09.30.18

 

09.30.19

 

09.30.18

Recovered expenses and fines (1)

                  126,247

 

               1,498,993

 

                  393,407

 

               3,682,924

Provisions for labor, tax, civil, regulatory and contingent liabilities (Note 18) (2)

                (149,614)

 

                (528,191)

 

                (473,569)

 

             (1,144,391)

Net gain (loss) on asset disposal/loss

                  175,528

 

                    39,764

 

                  223,269

 

                    31,163

Other operating income (expenses)

                  (22,354)

 

                  104,664

 

                    38,534

 

                  624,737

Total

                  129,807

 

               1,115,230

 

                  181,641

 

               3,194,433

 

 

 

 

 

 

 

 

Other operating income

                  301,775

 

               1,643,421

 

                  655,210

 

               4,338,824

Other operating expenses

                (171,968)

 

                (528,191)

 

                (473,569)

 

             (1,144,391)

Total

                  129,807

 

               1,115,230

 

                  181,641

 

               3,194,433

 

 

Consolidated

 

Three-month periods ended

 

Nine-month periods ended

 

09.30.19

 

09.30.18

 

09.30.19

 

09.30.18

Recovered expenses and fines (1)

                  127,452

 

               1,513,503

 

                  397,337

 

               3,748,283

Provisions for labor, tax, civil, regulatory and contingent liabilities (Note 18) (2)

                (150,905)

 

                (532,523)

 

                (479,915)

 

             (1,156,410)

Net gain (loss) on asset disposal/loss

                  175,509

 

                    40,652

 

                  222,255

 

                    32,100

Other operating income (expenses)

                  (45,875)

 

                (150,720)

 

                  (41,912)

 

                (292,021)

Total

                  106,181

 

                  870,912

 

                    97,765

 

               2,331,952

 

 

 

 

 

 

 

 

Other operating income

                  302,961

 

               1,554,155

 

                  619,592

 

               3,780,383

Other operating expenses

                (196,780)

 

                (683,243)

 

                (521,827)

 

             (1,448,431)

Total

                  106,181

 

                  870,912

 

                    97,765

 

               2,331,952

 

(1)  For the nine-month period ended September 30, 2018, includes tax credits amount to R$3,356,687 (Company) and R$3,386,433 (Consolidated), arising from the final court proceeding in favor of the Company and its subsidiary TData, which recognized the right to exclude ICMS (VAT) from the basis of calculation of PIS and COFINS contributions for the periods from September 2003 to June 2017 and July 2004 to June 2013.

 

(2)  The provisions for labor, tax, civil, regulatory and contingent liabilities, for the three and nine-month periods ended September 30, 2018, include write-offs of judicial deposits in the amount of R$160,715.

 

 

Page 52


 
 

(A free translation of the original in Portuguese)

 

Telefônica Brasil S. A.

NOTES TO THE QUARTERLY FINANCIAL STATEMENTS

Three and nine-month periods ended September 30, 2019

(In thousands of Reais, unless otherwise stated)

                                           

 

 

 

26) FINANCIAL INCOME (EXPENSES)

 

 

Company

 

Three-month periods ended

 

NIne-month periods ended

 

09.30.19

 

09.30.18

 

09.30.19

 

09.30.18

Financial Income

 

 

 

 

 

 

 

Interest income

                        80,075

 

                        52,154

 

                      198,502

 

                      161,154

Interest receivable (customers, taxes and other)

                        25,817

 

                        22,615

 

                      150,013

 

                        85,646

Gain on derivative transactions (Note 30)

                      107,343

 

                        88,676

 

                      265,829

 

                      212,435

Foreign exchange variations on loans and financing (Note 19)

                             203

 

                        12,294

 

                          5,147

 

                        21,753

Other revenues from foreign exchange and monetary variation (1)

                        79,593

 

                   1,167,816

 

                      158,032

 

                   3,111,753

Other financial income

                        39,332

 

                               59

 

                      122,294

 

                        (1,656)

Total

                      332,363

 

                   1,343,614

 

                      899,817

 

                   3,591,085

 

 

 

 

 

 

 

 

Financial Expenses

 

 

 

 

 

 

 

Loan, financing, debenture, leases charges and contingent consideration (Note 19) (3)

                    (245,669)

 

                    (115,268)

 

                    (653,445)

 

                    (380,371)

Foreign exchange variation on loans and financing (Note 19)

                                  -

 

                      (18,867)

 

                        (4,036)

 

                      (55,815)

Loss on derivative transactions (Note 30)

                    (105,033)

 

                      (88,197)

 

                    (234,112)

 

                    (215,953)

Interest payable (financial institutions, provisions, trade accounts payable, taxes and other)

                      (39,857)

 

                      (47,586)

 

                      (71,794)

 

                    (109,775)

Other expenses with foreign exchange and monetary variation

                    (229,099)

 

                    (354,885)

 

                    (510,654)

 

                    (731,536)

IOF, Pis, Cofins and other financial expenses (2)

                      (22,629)

 

                      (84,413)

 

                      (68,504)

 

                    (229,611)

Total

                    (642,287)

 

                    (709,216)

 

                 (1,542,545)

 

                 (1,723,061)

 

 

Consolidated

 

Three-month periods ended

 

NIne-month periods ended

 

09.30.19

 

09.30.18

 

09.30.19

 

09.30.18

Financial Income

 

 

 

 

 

 

 

Interest income

                        85,072

 

                        59,225

 

                      209,014

 

                      189,024

Interest receivable (customers, taxes and other)

                        26,218

 

                        25,480

 

                      151,528

 

                        96,998

Gain on derivative transactions (Note 30)

                      107,343

 

                        90,240

 

                      266,444

 

                      215,128

Foreign exchange variations on loans and financing (Note 19)

                             203

 

                        12,294

 

                          5,147

 

                        21,753

Other revenues from foreign exchange and monetary variation (1)

                        82,055

 

                   1,177,052

 

                      163,937

 

                   3,155,692

Other financial income

                        39,343

 

                          7,673

 

                      122,328

 

                        20,916

Total

                      340,234

 

                   1,371,964

 

                      918,398

 

                   3,699,511

 

Financial Expenses

 

 

 

 

 

 

 

Loan, financing, debenture, leases charges and contingent consideration (Note 19) (3)

                    (245,687)

 

                    (115,268)

 

                    (653,500)

 

                    (380,371)

Foreign exchange variation on loans and financing (Note 19)

                                  -

 

                      (18,867)

 

                        (4,036)

 

                      (55,815)

Loss on derivative transactions (Note 30)

                    (105,033)

 

                      (89,920)

 

                    (234,349)

 

                    (220,241)

Interest payable (financial institutions, provisions, trade accounts payable, taxes and other)

                      (40,182)

 

                      (48,147)

 

                      (72,764)

 

                    (111,986)

Other expenses with foreign exchange and monetary variation

                    (231,803)

 

                    (360,705)

 

                    (520,031)

 

                    (744,019)

IOF, Pis, Cofins and other financial expenses (2)

                      (23,428)

 

                      (85,350)

 

                      (70,183)

 

                    (234,988)

Total

                    (646,133)

 

                    (718,257)

 

                 (1,554,863)

 

                 (1,747,420)

 

Page 53


 
 

(A free translation of the original in Portuguese)

 

Telefônica Brasil S. A.

NOTES TO THE QUARTERLY FINANCIAL STATEMENTS

Three and nine-month periods ended September 30, 2019

(In thousands of Reais, unless otherwise stated)

                                           

(1)     For the nine-month period ended September 30, 2018, includes monetary restatements, in the amount of R$2,856,198 (Company) and R$2,885,432 (Consolidated), on the tax credits arising from the final court proceeding in favor of the Company and its subsidiary TData, which recognized the right to exclude ICMS (VAT) from the basis of calculation of PIS and COFINS contributions for the periods from September 2003 to June 2017 and July 2004 to June 2013.

 

(2)     For the nine-month periods ended September 30, 2018, includes the amount of R$134,173 of PIS and COFINS on the indexation for inflation credits in (1) above.

 

(3)     For the nine-month periods ended September 30, 2019 and 2018, includes the consolidated amounts of R$342,068 and R$15,255, respectively, related to leases charges.,173

 

27) BALANCES AND TRANSACTIONS WITH RELATED PARTIES

 

a)   Balances and transactions with related parties

 

The main balances of assets and liabilities with related parties arises from transactions with companies related to the controlling group carried out at the prices and other commercial conditions agreed in contracts between the parts as follows:

 

a)   Fixed and mobile telephony services provided by Telefónica Group companies.

 

b)   Digital TV services provided by Media Networks Latino America.

 

c)   Lease, maintenance of safety equipment and civil construction services, provided by Telefônica Inteligência e Segurança Brasil.

 

d)   Corporate services passed through at the cost effectively incurred for these services.

 

e)   Right to use certain software licenses, including maintenance and support, provided by Telefónica Global Technology.

 

f)    International transmission infrastructure for several data circuits and roaming services provided by Telxius Cable Brasil, Telefónica International Wholesale Services Espanha, Telefónica USA; and Media Net Br.

 

g)   Operations by Telefónica Group companies, relating to the purchase of internet content, advertising and auditing services.

 

h)   Marketing services provided by Telefónica Group companies.

 

i)    Information access services through the electronic communications network, provided by Telefonica de Espanha.

 

j)    Data communication services and integrated solutions provided by Telefónica International Wholesale Services Espanha and Telefónica USA.

 

k)   Long distance call and international roaming services provided by Telefónica Group companies.

 

l)    Sundry expenses and costs to be reimbursed by Telefónica Group companies.

 

m) Brand fee for assignment of rights to use the brand paid to Telefónica.

 

n)   Platform of health services provided by Aximed.

 

o)   Cost Sharing Agreement for digital-business related expenses reimbursed to Telefónica Digital.

 

Page 54


 
 

(A free translation of the original in Portuguese)

 

Telefônica Brasil S. A.

NOTES TO THE QUARTERLY FINANCIAL STATEMENTS

Three and nine-month periods ended September 30, 2019

(In thousands of Reais, unless otherwise stated)

                                           

p)   Leases/rentals of Telefónica Group companies’ buildings.

 

q)   Financial Clearing House roaming, inflows of funds for payments and receipts arising from roaming operation between group companies operated by Telfisa.

 

r)    Integrated e-learning, online education and training solutions provided by Telefônica Serviços de Ensino.

 

s)   Factoring transactions, credit facilities for services provided by the Group's suppliers.

 

t)    Social investment in Fundação Telefônica, innovative use of technology to enhance learning and knowledge, contributing to personal and social development.

 

u)   Contracts or agreements assigning user rights for cable ducts, optical fiber duct rental services, and right-of-way related occupancy agreements with several highway concessionaires provided by Companhia AIX.

 

v)   Adquira Sourcing platform - online solution provided by Telefónica Compras Electrónicas to transact purchase and sale of all types of goods and services.

 

w)  Digital media; marketing and sales, in-store and outdoor digital marketing services provided by Telefônica On The Spot Soluções Digitais Brasil.

 

x)   Tower lease transactions between Telefonica Brasil and Telxius Torres Brasil.

 

y)   Amounts to be reimbursed by SPTE as a result of contractual clause of the purchase of Terra Networks Brasil equity interest.

 

z)   Sale of digital products, creation of an exclusive band channel that responds to the commercial demand for these digital services and products.

 

aa)    Hosting services, housing and telecommunications solutions for the corporate market provided by Acens.

 

bb)   Consulting services, technical support, import and export of goods with the company Telefonica Ingeniería de Seguridad.

 

The Company and its subsidiaries sponsor pension plans and other post-employment benefits for its employees with Visão Prev and Sistel (Note 29).

 

The following table summarizes the consolidated balances with related parties:

 

Page 55


 
 

(A free translation of the original in Portuguese)

 

Telefônica Brasil S. A.

NOTES TO THE QUARTERLY FINANCIAL STATEMENTS

Three and nine-month periods ended September 30, 2019

(In thousands of Reais, unless otherwise stated)

                                           

 

 

 

 

Balance Sheet - Assets

 

 

 

09/30/19

12/31/18

Companies

Type of transaction

 

Cash and cash equivalents

 

Accounts receivable, net

 

Other assets and prepaid expenses

 

Cash and cash equivalents

 

Accounts receivable, net

 

Other assets

Parent Companies

 

 

 

 

 

 

 

 

 

 

 

 

 

SP Telecomunicações  Participações

d) / l)

 

  -

 

  -

 

  9,302

 

  -

 

  -

 

  10,083

Telefónica LatinoAmerica Holding 

l)

 

  -

 

  -

 

  35,659

 

  -

 

  -

 

  60,387

Telefónica

l) / z)

 

  -

 

  10,902

 

  2,634

 

  -

 

  9,300

 

  29,757

 

 

 

  -

 

  10,902

 

  47,595

 

  -

 

  9,300

 

  100,227

Other Group companies

 

 

 

 

 

 

 

 

 

 

 

 

 

Colombia Telecomunicaciones ESP

k) / l)

 

  -

 

430

 

520

 

  -

 

  1,334

 

520

Media Networks Brasil Soluções Digitais

a) / d) / l) / p)

 

  -

 

578

 

68

 

  -

 

903

 

  4,051

T.O2 Germany GMBH CO. OHG

k)

 

  -

 

  1,681

 

  -

 

  -

 

  20,877

 

  -

Telefónica Venezolana

k)

 

  -

 

  6,484

 

  2,196

 

  -

 

  5,926

 

  2,196

Telefônica Digital España

g) / l)

 

  -

 

621

 

301

 

  -

 

197

 

294

Telefônica Factoring do Brasil

a) / d) /  l)

 

  -

 

12

 

35

 

  -

 

  6,360

 

133

Telefónica Global Technology

l)

 

  -

 

  -

 

  1,540

 

  -

 

  -

 

  -

Telefônica Inteligência e Segurança Brasil

a) / d) / l)

 

  -

 

  -

 

  -

 

  -

 

800

 

986

Telefónica International Wholesale Services Espanha

j) / k)

 

  -

 

  42,388

 

  -

 

  -

 

  46,537

 

  -

Telefônica Serviços de Ensino

a) / p)

 

  -

 

176

 

16

 

  -

 

286

 

  -

Telefónica Moviles Argentina

k)

 

  -

 

  4,652

 

  -

 

  -

 

  5,074

 

  -

Telefónica Moviles Espanha

k)

 

  -

 

  5,265

 

  -

 

  -

 

  7,576

 

  -

Telefónica USA

j)

 

  -

 

  8,888

 

  -

 

  -

 

  9,005

 

  -

Telfisa Global BV

q)

 

  56,336

 

  -

 

  -

 

  46,755

 

  -

 

  -

Telxius Cable Brasil

a) / d) /  l) / p)

 

  -

 

  14,553

 

  5,170

 

  -

 

  11,628

 

  5,295

Telxius Torres Brasil

d) / p) / x)

 

  -

 

  5,706

 

  4,039

 

  -

 

  6,776

 

  4,268

Terra Networks México, Terra Networks Perú and Terra Networks Argentina

g) / h)

 

  -

 

858

 

  -

 

  -

 

  5,341

 

  -

Other

a) / d) / k) / g) / h) / l) / p) / bb)

 

  -

 

  18,431

 

  3,314

 

  -

 

  10,894

 

  2,806

 

 

 

  56,336

 

  110,723

 

  17,199

 

  46,755

 

  139,514

 

 20,549

Total

 

 

  56,336

 

  121,625

 

  64,794

 

  46,755

 

  148,814

 

  120,776

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents (Note 3)

 

 

  56,336

 

  -

 

  -

 

  46,755

 

  -

 

  -

Accounts receivable (Note 4)

 

 

  -

 

  121,625

 

  -

 

  -

 

  148,814

 

  -

Prepaid expenses (Note 6)

 

 

  -

 

  -

 

  1,743

 

  -

 

  -

 

  -

Other assets (Note 10)

 

 

  -

 

  -

 

 57,683

 

  -

 

  -

 

  114,715

Non-current assets

 

 

 

 

 

 

 

 

 

 

 

 

 

Prepaid expenses (Note 6)

 

 

  -

 

  -

 

  4,661

 

  -

 

  -

 

  -

Other assets (Note 10)

 

 

  -

 

  -

 

707

 

  -

 

  -

 

  6,061

 

 

Page 56


 
 

(A free translation of the original in Portuguese)

 

Telefônica Brasil S. A.

NOTES TO THE QUARTERLY FINANCIAL STATEMENTS

Three and nine-month periods ended September 30, 2019

(In thousands of Reais, unless otherwise stated)

                                           

 

 

 

 

 

 

 

Balance Sheet - Liabilities

 

 

 

 

 

 

09.30.19

 

12.31.18

Companies

 

 

 

Type of transaction

 

Trade  accounts payable and other payables

 

Other liabilities and leases

 

Trade  accounts payable and other payables

 

Other liabilities

Parent Companies

 

 

 

 

 

 

 

 

 

 

 

 

SP Telecomunicações  Participações

 

 

 

l) / y)

 

  -

 

  23,345

 

  -

 

  21,901

Telefónica LatinoAmerica Holding 

 

 

 

l)

 

  -

 

  -

 

  -

 

  -

Telefónica

 

 

 

l) / m)

 

579

 

  99,166

 

687

 

  1,393

 

 

 

 

 

 

579

 

  122,511

 

687

 

  23,294

Other Group companies

 

 

 

 

 

 

 

 

 

 

 

 

Colombia Telecomunicaciones S.A. ESP

 

 

 

k)

 

815

 

  -

 

  1,056

 

  -

Fundação Telefônica

 

 

 

l)

 

  -

 

  -

 

  -

 

   82

Media Networks Latina America SAC

 

 

 

b)

 

  13,528

 

  -

 

  10,212

 

  -

Media Networks Brasil Soluções Digitais

 

 

 

f) / l)

 

  43,904

 

318

 

  44,693

 

318

T.O2 Germany GMBH CO. OHG

 

 

 

k)

 

  5,155

 

  -

 

  5,706

 

  -

Telefónica Venezolana

 

 

 

k)

 

  6,037

 

  -

 

  5,410

 

  -

Telefónica Compras Electrónicas

 

 

 

v)

 

  17,433

 

  -

 

  32,582

 

  -

Telefônica Digital España

 

 

 

o)

 

  62,701

 

  2,056

 

  43,340

 

  -

Telefônica Factoring do Brasil

 

 

 

l) / s)

 

  -

 

  4,704

 

  -

 

  2,770

Telefónica Global Technology

 

 

 

e)

 

  14,498

 

  -

 

  28,750

 

  -

Telefônica Inteligência e Segurança Brasil

 

 

 

c) / l)

 

  -

 

  -

 

  52,184

 

27

Telefónica International Wholesale Services Espanha

 

 

 

f) / k)

 

  35,096

 

  -

 

  26,097

 

  -

Telefônica Serviços de Ensino

 

 

 

r)

 

  8,517

 

  -

 

  22,518

 

  -

Telefónica Moviles Argentina

 

 

 

k)

 

  4,292

 

  -

 

  4,160

 

  -

Telefónica Moviles Espanha

 

 

 

k)

 

  4,825

 

  -

 

  5,233

 

  -

Telefónica USA

 

 

 

f)

 

  11,304

 

228

 

  4,411

 

200

Telxius Cable Brasil

 

 

 

f) / l)

 

  44,599

 

  2,067

 

  39,662

 

  2,067

Telxius Torres Brasil

 

 

 

x)

 

  28,881

 

  489,003

 

  38,735

 

  1,926

Terra Networks México, Terra Networks Perú and Terra Networks Argentina

 

 

 

h)

 

  6,322

 

  -

 

  1,766

 

  -

Other

 

  k) / h) / i) / l) / n) / u) / w) / aa) / bb)

 

  22,818

 

275

 

  16,310

 

  1,032

 

 

 

 

 

 

  330,725

 

  498,651

 

  382,825

 

  8,422

Total

 

 

 

 

 

  331,304

 

  621,162

 

  383,512

 

  31,716

 

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

 

 

 

 

Trade  accounts payable and other payables (Note 15)

 

 

 

 

 

  331,304

 

  -

 

  383,512

 

  -

Leases (Note 19)

 

 

 

 

 

  -

 

  488,795

 

  -

 

  -

Other liabilities (Note 21)

 

 

 

 

 

  -

 

  131,210

 

  -

 

  22,220

Non-current liabilities

 

 

 

 

 

 

 

 

 

 

 

 

Other liabilities (Note 21)

 

 

 

 

 

  -

 

  1,157

 

  -

 

  9,496

 

 

Page 57


 
 

(A free translation of the original in Portuguese)

 

Telefônica Brasil S. A.

NOTES TO THE QUARTERLY FINANCIAL STATEMENTS

Three and nine-month periods ended September 30, 2019

(In thousands of Reais, unless otherwise stated)

                                           

 

 

 

 

Statement of income

 

 

 

Nine-month periods ended

 

 

 

09.30.19

 

09.30.18

Companies

Type of transaction

 

Operating revenues

 

Cost, expenses and other expenses (revenues) operating

 

Financial result

 

Operating revenues

 

Cost, expenses and other expenses (revenues) operating

 

Financial result

Parent Companies

 

 

 

 

 

 

 

 

 

 

 

 

 

SP Telecomunicações  Participações

d) / l)

 

  -

 

345

 

  -

 

  -

 

253

 

 -

Telefónica LatinoAmerica Holding 

l)

 

  -

 

  13,801

 

  1,605

 

  -

 

  12,583

 

  10,964

Telefónica

l) / m)

 

  -

 

(299,091)

 

  (6,375)

 

  -

 

(263,997)

 

  (18,321)

 

 

 

  -

 

(284,945)

 

  (4,770)

 

  -

 

(251,161)

 

  (7,357)

Other Group companies

 

 

 

 

 

 

 

 

 

 

 

 

 

Colombia Telecomunicaciones S.A. ESP

k) / l)

 

17

 

  1,233

 

(1)

 

110

 

  (471)

 

761

Fundação Telefônica

l) / t)

 

  -

 

(8,965)

 

  -

 

  -

 

(9,778)

 

  -

Media Networks Brasil Soluções Digitais

a) / d) / f) / l) / p)

 

485

 

(81,941)

 

(54)

 

  1,588

 

   (81,290)

 

  -

Media Networks Latina America SAC

b)

 

  -

 

(31,715)

 

(739)

 

  -

 

(24,523)

 

  (1,250)

Telefônica Serviços de Ensino

a) / p) / r)

 

651

 

(27,433)

 

  -

 

947

 

(38,418)

 

  -

T.O2 Germany GMBH CO. OHG

k)

 

(108)

 

727

 

  1,845

 

137

 

(1,948)

 

 -

Telefónica Compras Electrónicas

v)

 

  -

 

(19,398)

 

  -

 

  -

 

(25,094)

 

  -

Telefônica Digital España

l) / o)

 

(32)

 

(85,363)

 

  (6,149)

 

  -

 

(92,229)

 

512

Telefônica Factoring do Brasil

a) / d) / l) / s)

 

  1,889

 

  (308)

 

  (4,695)

 

  4,244

 

159

 

64

Telefónica Global Technology, S.A.U.

e) / l)

 

  -

 

(44,203)

 

85

 

4

 

(37,746)

 

  (1,368)

Telefônica Inteligência e Segurança Brasil 

a) / c) / d) / l) / p)

 

591

 

(27,079)

 

  -

 

  1,188

 

(23,817)

 

  -

Telefónica International Wholesale Services Espanha

f) / j) / k)

 

  35,738

 

(43,475)

 

  (3,413)

 

  41,397

 

(42,686)

 

  6,696

Telefónica Moviles Argentina

k)

 

  3,404

 

(2,818)

 

   101

 

  5,360

 

(2,975)

 

  -

Telefónica Moviles Espanha

k)

 

316

 

(1,301)

 

  -

 

(249)

 

(4,898)

 

  -

Telefónica USA

f) / j)

 

38

 

(14,755)

 

  1,129

 

  1,299

 

(4,431)

 

281

Telxius Cable Brasil

a) / d) / f) / l) / p)

 

  11,660

 

(187,075)

 

  (3,164)

 

  46,702

 

(150,227)

 

  (7,453)

Telxius Torres Brasil (1)

d) / l) / p) / x)

 

54

 

  (541)

 

  (17,529)

 

  2,450

 

(88,062)

 

  -

Terra Networks Chile, Terra Networks México, Terra Networks Perú and Terra Networks Argentina

h)

 

  2,381

 

(4,831)

 

387

 

  -

 

(3,259)

 

786

Other

a) / d) /  f) / h) / i) / k) / l) / n) / p) / u) / w) / aa) / bb)

 

  4,009

 

(42,137)

 

574

 

  3,315

 

(42,037)

 

  1,083

 

 

 

  61,093

 

(621,378)

 

  (31,623)

 

  108,492

 

(673,730)

 

112

Total

 

 

  61,093

 

(906,323)

 

  (36,393)

 

  108,492

 

(924,891)

 

  (7,245)

 

(1)  Upon adoption of IFRS 16, there was a decrease in rental costs for the nine-month period ended September 30, 2019.

 

b)   Management compensation

 

Consolidated key management compensation paid by the Company to its Board of Directors and Statutory Officers was R$18,909 and R$18,028 in the nine-month periods ended September 30, 2019 and 2018 respectively. Of this amount, R$12,231 (R$12,644 at September 30, 2018) corresponds to salaries, benefits and social charges and R$6,678 (R$5,384 at September 30, 2018) to variable compensation.

 

These were recorded as personnel expenses in General and administrative expenses (Note 24).

 

In the nine-month periods ended September 30, 2019 and 2018, the Directors and Officers received no pension, retirement or similar benefits.

 

28)  SHARE-BASED PAYMENT PLANS

 

Telefónica, the Company's parent company, has different share-based payment plans which are also offered to management and employees of its subsidiaries, including the Company and its subsidiaries.

 

The fair value of the shares is estimated when granted, using the binomial valuation model, that considers the terms and conditions of the instruments' concession.

 

The Company and its subsidiaries reimburse Telefónica for the fair value of the benefit delivered on the grant date to the officers and employees.

 

Page 58


 
 

(A free translation of the original in Portuguese)

 

Telefônica Brasil S. A.

NOTES TO THE QUARTERLY FINANCIAL STATEMENTS

Three and nine-month periods ended September 30, 2019

(In thousands of Reais, unless otherwise stated)

                                           

The details of these plans are consistent with Note 29) Share-Based Payment Plans in the financial statements for the year ended December 31, 2018.

 

The main plans in effect at September 30, 2019 are detailed below:

·       Talent for the Future Share Plan (“TFSP”), for its executives at the global level:

The 2018-2020 cycle (January 1, 2018 to December 31, 2020): includes the potential rights to receive 118,000 shares of Telefónica.

 

The 2019-2021 cycle (January 1, 2019 to December 31, 2021): includes the potential rights to receive 127,250 shares of Telefónica.

·       Perform Share Plan (“PSP”), for its executives at the global level:

The 2018-2020 cycle (January 1, 2018 to December 31, 2020): includes 103 active executives (including 3 executives appointed under the Company's by-laws), with the potential right to receive 802,449 shares of Telefónica.

 

The 2019-2021 cycle (January 1, 2019 to December 31, 2021): includes 104 active executives (including 3 executives appointed under the Company's by-laws), with the potential right to receive 991,777 shares of Telefónica.

 

The granting of shares is conditional upon: (i) maintenance of an active employment relationship within the Telefónica Group on the cycle consolidation date; and (ii) achievement of results representing fulfillment of the objectives established for the plan.

·       Global Employee Share Plan (“GESP”)

The 2019-2021 cycle (July 1, 2019 to June 31, 2021): Employees enrolled in the plan acquired Telefónica shares through monthly contributions of €25 to €150 (or the equivalent in local currency) up to €1,800 over 12 months (acquisition period).

 

The delivery of shares occurred after the vesting period of the plan, as of July 31, 2021, and was conditional on: (i) the permanence in the Company during the 2-year program period (vesting period), subject to certain special conditions related to terminations; and (ii) the exact number of shares to be granted at the end of the vesting period depends on the number of shares acquired and held by employees. Thus, employees enrolled with the plan, who remained in the Telefónica Group and who have held the shares acquired for an additional period of over 12 months after the end of the purchase period, will be entitled to receive one free share for each share they have acquired and held until the end of the vesting period.

 

Company and subsidiaries share-based compensation plans expenses described above, where applicable, are recorded as personnel expenses, divided into the groups Cost of Services, Selling expenses and General and Administrative Expenses (Note 24), corresponding to R$14,805 and R$11,196 for the nine-month periods ended September 30, 2019 and 2018.

 

29)  PENSION PLANS AND OTHER POST-EMPLOYMENT BENEFITS

 

The plans sponsored by the Company and its subsidiaries and the related benefit types are as follows:

 

 

Plan

 

Type

 

Entity

 

Sponsor

PBS-A

 

Defined benefit (DB)

 

Sistel

 

Telefônica Brasil, jointly with other telecoms resulting from privatization of the Sistema Telebrás

PAMA / PCE

 

Defined benefit (DB)

 

Sistel

 

Telefônica Brasil, jointly with other telecoms resulting from privatization of the Sistema Telebrás

Healthcare - Law No. 9656/98

 

Defined benefit (DB)

 

Telefônica Brasil

 

Telefônica Brasil, Terra Networks and TGLog

CTB

 

Defined benefit (DB)

 

Telefônica Brasil

 

Telefônica Brasil

Telefônica BD

 

Defined benefit (DB)

 

VisãoPrev

 

Telefônica Brasil

VISÃO

 

Defined contribution (DC) / Hybrid

 

VisãoPrev

 

Telefônica Brasil, Terra Networks and TGLog

 

The details of these plans are consistent with Note 30) Pension Plans and Other Post-Employment Benefits in the financial statements for the year ended December 31, 2018.

 

Page 59


 
 

(A free translation of the original in Portuguese)

 

Telefônica Brasil S. A.

NOTES TO THE QUARTERLY FINANCIAL STATEMENTS

Three and nine-month periods ended September 30, 2019

(In thousands of Reais, unless otherwise stated)

                                           

Consolidated balances of both underfunded and surplus plans are shown below:

 

 

Consolidated

 

Plans with surplus

 

Plans with deficit

 

Total

Balances at 12/31/17

                    9,833

 

              (531,938)

 

              (522,105)

   Current service cost

                  (1,834)

 

                (10,656)

 

                (12,490)

   Net interest on net defined benefit liabilities/assets

                       767

 

                (39,741)

 

                (38,974)

   Contributions and benefits paid by the employers

                    1,476

 

                  13,128

 

                  14,604

Balances at 09/30/18

                  10,242

 

              (569,207)

 

              (558,965)

   Current service cost

                     (595)

 

                  (3,568)

 

                  (4,163)

   Net interest on net defined benefit liabilities/assets

                       253

 

                (13,245)

 

                (12,992)

   Contributions and benefits paid by the employers

                     (114)

 

                    1,244

 

                    1,130

   Effects on comprehensive income

                    1,211

 

                (94,702)

 

                (93,491)

Balances at 12/31/18

                  10,997

 

              (679,478)

 

              (668,481)

   Current service cost

                  (2,053)

 

                (12,416)

 

                (14,469)

   Net interest on net defined benefit liabilities/assets

                       803

 

                (47,553)

 

                (46,750)

   Contributions and benefits paid by the employers

                    1,336

 

                  15,102

 

                  16,438

   Business combinations (Note 1 c.1)

                            -

 

                  (1,994)

 

                  (1,994)

Balances at 09/30/19

                  11,083

 

              (726,339)

 

              (715,256)

 

30)  FINANCIAL INSTRUMENTS AND RISK AND CAPITAL MANAGEMENT

 

a) Derivative transactions

 

The derivative financial instruments contracted by the Company are mainly used for hedging against foreign exchange risk from assets and liabilities in foreign currency, the effects of inflation on debentures and leases indexed to the IPCA. There are no derivative financial instruments held for speculative purposes, possible currency risks are hedged.

 

Management believes that the Company's internal controls for its derivatives are adequate to control risks associated with each strategy for the market. Gains/losses obtained or sustained by the Company in relation to its derivatives show that its risk management has been appropriate.

As long as these derivative contracts qualify for hedge accounting, the hedged item is adjusted to fair value, offsetting the result of the derivatives, pursuant to the rules of hedge accounting. This hedge accounting applies both to financial liabilities and probable cash flows in foreign currency.

At September 30, 2019 and December 31, 2018, the Company held no embedded derivatives contracts.

 

Derivatives contracts include specific penalties for breach of contract. Breach of contract provided for in agreements made with financial institutions leads to the anticipated liquidation of the contract.

 

a.1) Fair value of derivative financial instruments

The valuation method used to calculate the fair value of financial liabilities (if applicable) and derivative financial instruments was the discounted cash flow method, based on expected settlements or realization of liabilities and assets at market rates prevailing at the balance sheet date.

 

The fair values of positions in Reais are calculated by projecting future inflows from transactions using B3 yield curves and discounting these flows to present value using market DI rates for swaps announced by B3.

 

Page 60


 
 

(A free translation of the original in Portuguese)

 

Telefônica Brasil S. A.

NOTES TO THE QUARTERLY FINANCIAL STATEMENTS

Three and nine-month periods ended September 30, 2019

(In thousands of Reais, unless otherwise stated)

                                           

 

The market values of foreign exchange derivatives were obtained using the market exchange rates in effect at the balance sheet date and projected market rates obtained from the currency's coupon-rate yield curves. The linear convention of 360 calendar days was used to determine coupon rates of positions indexed in foreign currencies, while the exponential convention of 252 business days was used to determine coupon rates for positions indexed to CDI rates.

 

Consolidated derivatives financial instruments shown below are registered with B3 and classified as swaps, usually, that do not require margin deposits.

 

 

 

Consolidated

 

 

 

 

 

 

Accumulated effects from fair value

 

 

Notional Value

 

Amount receivable (payable)

Description

 

09.30.19

 

12.31.18

 

09.30.19

 

12.31.18

Long position

 

                250,754

 

             1,184,064

 

                  65,249

 

                  95,533

 

 

 

 

 

 

 

 

 

Foreign Currency

 

                  16,595

 

                335,194

 

                         28

 

                  50,536

US$  (1) (2)

 

                    8,174

 

                241,332

 

                         15

 

                  24,608

EUR  (2)

 

                    7,104

 

                  51,971

 

                         10

 

                            -

LIBOR US$  (1)

 

                            -

 

                  41,891

 

                            -

 

                  25,928

NDF US$  (6)

 

                    1,317

 

                            -

 

                           3

 

                            -

 

 

 

 

 

 

 

 

 

Floating rate

 

                120,837

 

                699,595

 

                         34

 

                    7,737

CDI (1) (2)

 

                120,837

 

                554,336

 

                         34

 

                            -

TJLP (4)

 

                            -

 

                145,259

 

                            -

 

                    7,737

 

 

 

 

 

 

 

 

 

Inflation rates

 

                113,322

 

                149,275

 

                  65,187

 

                  37,260

IPCA (3) (5)

 

                113,322

 

                149,275

 

                  65,187

 

                  37,260

 

 

 

 

 

 

 

 

 

Short position

 

              (250,754)

 

           (1,184,064)

 

                (48,662)

 

                (39,383)

 

 

 

 

 

 

 

 

 

Floating rate

 

              (128,600)

 

              (608,782)

 

                (47,776)

 

                (24,916)

CDI (1) (2) (3) (4) (5)

 

              (128,600)

 

              (608,782)

 

                (47,776)

 

                (24,916)

 

 

 

 

 

 

 

 

 

Pre fixed rates

 

                  (1,317)

 

                            -

 

                            -

 

                            -

NDF US$  (6)

 

                  (1,317)

 

                            -

 

                            -

 

                            -

 

 

 

 

 

 

 

 

 

Foreign Currency

 

              (120,837)

 

              (575,282)

 

                     (886)

 

                (14,467)

US$  (2)

 

              (118,038)

 

              (439,103)

 

                     (886)

 

                  (9,396)

EUR  (1) (2)

 

                  (2,799)

 

              (115,233)

 

                            -

 

                     (222)

LIBOR US$  (1)

 

                            -

 

                (20,946)

 

                            -

 

                  (4,849)

 

 

 

 

 

 

 

 

 

 

 

  Long position

 

 

 

                  65,249

 

                  95,533

 

 

     Current

 

 

 

                  11,999

 

                  69,065

 

 

     Non-current

 

 

 

                  53,250

 

                  26,468

 

 

 

 

 

 

 

 

 

 

 

  Short position

 

 

 

                (48,662)

 

                (39,383)

 

 

     Current

 

 

 

                     (886)

 

                (16,538)

 

 

     Non-current

 

 

 

                (47,776)

 

                (22,845)

 

 

  Amounts receivable, net 

 

                  16,587

 

                  56,150

 

 

 

Page 61


 
 

(A free translation of the original in Portuguese)

 

Telefônica Brasil S. A.

NOTES TO THE QUARTERLY FINANCIAL STATEMENTS

Three and nine-month periods ended September 30, 2019

(In thousands of Reais, unless otherwise stated)

                                           

(1) Foreign currency swaps (US$ and LIBOR) x CDI - swap transactions with maturities up to July 2019, according to the debt maturities, with the purpose of hedging the exchange rate risk of the Company's dollar lending operation.

 

(2) Foreign currency swaps (Euro and CDI x Euro) (R$4,329) and (US$ and CDI x US$) (R$110,848) - maturing through October 30, 2019 to hedge currency risk affecting net amounts payable (carrying amount R$4,381 in Euros and LIBOR) and receivables (carrying amount R$110,848 in US$).

 

(3) IPCA x CDI rate swaps (R$42,807) - maturing through 2019 to hedge the same flow as the debentures (4th issue - 3rd series) indexed to the IPCA (carrying amount R$42,829).

 

(4)  TJLP x CDI swaps transactions contracted with maturities up to July 2019 to hedge the risk of TJLP variation on loan with BNDES.

(5)  IPCA x CDI swaps (R$216,157) - maturing in 2033 to hedge risk of change in leases rate pegged to IPCA (carrying amount R$254,047).

(6)  NDF US$ x R$ (R$1,317) - forward operation contracted maturing on October 29, 2019 to hedge against risks of exchange variation of net amounts payable (book value of R$1,317 in US$).

The table below shows the breakdown of swaps maturing after September 30, 2019:

 

 

 

Consolidated

 

 

Maturing in

 

 

Swap contract

 

1 to 12 months

 

13 to 24 months

 

25 to 36 months

 

37 to 48 months

 

49 to 60 months

 

From 61 months

 

Amount receivable (payable) at 09.30.19

Foreign currency x CDI

 

25

 

  -

 

  -

 

  -

 

 -

 

  -

 

25

CDI x Foreign Currency

 

(853)

 

  -

 

 -

 

  -

 

  -

 

  -

 

(853)

IPCA x CDI

 

  11,938

 

  2,843

 

  3,244

 

  3,444

 

  3,538

 

  (7,595)

 

  17,412

NDF US$ x Pre

 

3

 

  -

 

  -

 

  -

 

  -

 

  -

 

3

Total

 

  11,113

 

  2,843

 

  3,244

 

  3,444

 

  3,538

 

  (7,595)

 

 16,587

 

For the purposes of preparing its financial statements, the Company adopted the fair value hedge accounting methodology for its foreign currency swaps x CDI, IPCA x CDI and NDF pre x foreign currency for hedging or financial debt. Under this arrangement, both derivatives and hedged risk are recognized at fair value.

 

At September 30, 2019 and 2018, the transactions with derivatives generated consolidated positive/negative (net) result of R$32,095 and R$5,113, respectively (Note 26).

 

a.2) Sensitivity analysis to the Company’s risk variables

CVM Resolution 475/08 requires listed companies to disclose sensitivity analyses for each type of market risk that management understands to be significant when originated by financial instruments to which the entity is exposed at the end of each period, including all derivative financial instrument transactions.

 

In making the above analysis, each of the transactions with derivative financial instruments was assessed and assumptions included a probable scenario and two others that could adversely impact the Company.

 

In the probable scenario assumption used, on the maturity dates of each of the transactions, were the market rates for the B3 yield curves (currencies and interest rates), and data from the IBGE, Central Bank, FGV, among others. In the probable scenario, there is no impact on the fair value of the above-mentioned derivatives. However, for Scenarios II and III, as per CVM ruling, risk variables were stressed by 25% and 50% respectively.

 

Since the Company only holds derivatives to hedge its foreign currency assets and liabilities, changing scenarios are tracked by the corresponding hedged items; the effects are almost non-existent. For these transactions, the Company reported the consolidated net exposure in each of the above-mentioned three scenarios at September 30, 2019.

 

Page 62


 
 

(A free translation of the original in Portuguese)

 

Telefônica Brasil S. A.

NOTES TO THE QUARTERLY FINANCIAL STATEMENTS

Three and nine-month periods ended September 30, 2019

(In thousands of Reais, unless otherwise stated)

                                           

 

Consolidated

Transaction

Risk

 

Probable

 

25% depreciation

 

50% depreciation

Hedge (long position)

Derivatives (depreciation risk EUR)

 

  4,329

 

  5,412

 

  6,494

Payables in EUR

Debt (appreciation risk EUR)

 

  (34,146)

 

  (42,683)

 

  (51,220)

Receivables in EUR

Debt (depreciation risk EUR)

 

  29,765

 

  37,206

 

  44,648

 

Net Exposure

 

(52)

 

(65)

 

(78)

 

 

 

 

 

 

 

 

Hedge (short position)

Derivatives (depreciation risk US$)

 

  (110,848)

 

  (138,560)

 

  (166,272)

Payables in US$

Debt (appreciation risk US$)

 

  (246,727)

 

  (308,409)

 

  (370,090)

Receivables in US$

Debt (depreciation risk US$)

 

  357,575

 

  446,969

 

  536,362

 

Net Exposure

 

  -

 

  -

 

  -

 

 

 

 

 

 

 

 

Hedge (long position)

Derivatives (risk of decrease in IPCA)

 

  296,172

 

  280,936

 

  267,179

Debt in IPCA

Debt (risk of increase in IPCA)

 

  (353,509)

 

  (338,273)

 

  (324,516)

 

Net Exposure

 

  (57,337)

 

  (57,337)

 

  (57,337)

 

 

 

 

 

 

 

 

Hedge (short position)

Derivatives (risk of decrease US$)

 

  (1,317)

 

  (1,646)

 

  (1,975)

Opex in US$

OPex (risk of increase in US$)

 

  1,317

 

  1,646

 

  1,975

 

Net Exposure

 

  -

 

  -

 

  -

 

 

 

 

 

 

 

 

Hedge (CDI position)

 

 

 

 

 

 

 

Hedge US$ and EUR (short and long position)

Derivatives (risk of decrease in CDI)

 

  (104,089)

 

  (104,025)

 

  (103,962)

Hedge IPCA (short position)

Derivatives (risk of increase in CDI)

 

  (296,172)

 

  (280,936)

 

  (267,179)

Hedge US$ (short - OPex)

Derivatives (risk of increase pre)

 

  1,317

 

  1,646

 

  1,975

 

Net Exposure

 

  (398,944)

 

  (383,315)

 

  (369,166)

 

 

 

 

 

 

 

 

Total net exposure in each scenario

 

 

  (456,333)

 

  (440,717)

 

  (426,581)

 

 

 

 

 

 

 

 

Net effect on changes in current fair value

 

 

  -

 

  15,616

 

  29,752

 

The assumptions used by the Company for the sensitivity analysis at September 30, 2019 were as follows:

 

Assumptions for sensitivity analysis

 

 

 

 

 

 

 

 

 

 

Risk Variable

 

 

Probable

 

25% depreciation

 

50% depreciation

US$

 

 

3.8322

 

4.7903

 

5.7483

EUR

 

 

4.3574

 

5.4468

 

6.5361

IPCA

 

 

3.49%

 

4.36%

 

5.24%

IGPM

 

 

6.51%

 

8.14%

 

9.77%

IGP-DI

 

 

6.04%

 

7.55%

 

9.06%

CDI

 

 

6.42%

 

8.03%

 

9.63%

 

 

For calculation of the net exposure for the sensitivity analysis, all derivatives were considered at market value and hedged items designated for hedges for accounting purposes were also considered at fair value.

 

The fair values shown in the table above are based on the portfolio position at September 30, 2019, but do not reflect an estimate for realization due to the dynamism of the market, which is constantly monitored by the Company. The use of different assumptions could significantly affect the estimates.

 

b) Fair value

The Company and its subsidiaries assessed their financial assets and liabilities in relation to market values using available information and appropriate valuation methodologies. However, both of interpretations about market data and the selection of valuation methods require considerable judgment and reasonable estimates to produce the most adequate realization value. As a result, the estimates shown do not necessarily indicate amounts that could be realized in the current market. The use of different assumptions for the market and/or methodologies may have a material effect on estimated realization values.

Page 63


 
 

(A free translation of the original in Portuguese)

 

Telefônica Brasil S. A.

NOTES TO THE QUARTERLY FINANCIAL STATEMENTS

Three and nine-month periods ended September 30, 2019

(In thousands of Reais, unless otherwise stated)

                                           

 

At September 30, 2019 and December 31, 2018, neither the Company not its subsidiaries detected any significant and enduring impairment of their financial instruments.

 

The fair values of all assets and liabilities are classified within the fair value hierarchy described below, based on the lowest level of information that is significant to the fair value measurement as a whole:


Level 1: quoted market prices (unadjusted) in active markets for identical assets or liabilities;


Level 2: valuation techniques for which there is a significantly lower level of information to measure the fair value directly or indirectly observable; and


Level 3: valuation techniques for which the lowest and significant level of information to measure the fair value is not available.

 

The tables below present the composition and classification of financial assets and liabilities at September 30, 2019 and December 31, 2018. During the periods shown in the tables below, there were no transfers between fair value measurements of Level 3 and Levels 1 and 2.

 

 

Company

 

 

 

 

Fair value hierarchy

 

Book value

 

Fair value

 

 

Classification by category

 

 

09.30.19

 

12.31.18

 

09.30.19

 

12.31.18

Financial Assets 

 

 

 

 

 

 

 

 

 

 

 

 

Current

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents  (Note 3)

 

  Amortized cost 

 

 

 

     4,377,594

 

     3,275,300

 

     4,377,594

 

     3,275,300

Trade accounts receivable (Note 4)

 

  Amortized cost 

 

 

 

     8,884,704

 

     8,246,991

 

     8,884,704

 

     8,246,991

Derivative transactions (Note 30)

 

  Measured at fair value through OCI

 

  Level 2 

 

          11,999

 

          69,065

 

          11,999

 

          69,065

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-current

 

 

 

 

 

 

 

 

 

 

 

 

Investments pledged as collateral

 

  Amortized cost 

 

 

 

          75,250

 

          76,717

 

          75,250

 

          76,717

Trade accounts receivable (Note 4)

 

  Amortized cost 

 

 

 

        450,218

 

        426,252

 

        450,218

 

        426,252

Derivative transactions (Note 30)

 

  Measured at fair value through OCI

 

  Level 2 

 

          53,250

 

          26,468

 

          53,250

 

          26,468

Total financial assets

 

 

 

 

 

   13,853,015

 

   12,120,793

 

   13,853,015

 

   12,120,793

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial Liabilities  

 

 

 

 

 

 

 

 

 

 

 

 

Current

 

 

 

 

 

 

 

 

 

 

 

 

Trade accounts payable, net (Note 15)

 

  Amortized cost 

 

 

 

     7,184,152

 

     7,746,133

 

     7,184,152

 

     7,746,133

Loans, financing and leases (Note 19)

 

  Amortized cost 

 

 

 

        738,208

 

     1,076,451

 

        740,135

 

     1,135,732

Loans, financing and leases (Note 19)

 

  Measured at fair value through profit or loss  

 

  Level 2 

 

     1,834,988

 

        263,754

 

     1,834,988

 

        263,754

Debentures (Note 19)

 

  Amortized cost 

 

 

 

          67,014

 

          82,840

 

        199,945

 

        237,144

Debentures (Note 19)

 

  Measured at fair value through profit or loss  

 

  Level 2 

 

          42,829

 

          41,121

 

          42,829

 

          41,121

Derivative transactions (Note 30)

 

  Measured at fair value through profit or loss  

 

  Level 2 

 

               886

 

          15,936

 

               886

 

          15,936

Derivative transactions (Note 30)

 

  Measured at fair value through OCI

 

  Level 2 

 

                    -

 

               222

 

                    -

 

               222

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-current

 

 

 

 

 

 

 

 

 

 

 

 

Loans, financing and leases (Note 19)

 

  Amortized cost 

 

 

 

          63,557

 

        817,908

 

          62,309

 

        796,481

Loans, financing and leases (Note 19)

 

  Measured at fair value through profit or loss  

 

  Level 2 

 

     7,456,334

 

        341,728

 

     7,456,334

 

        341,728

Contingent consideration (Note 19)

 

  Measured at fair value through profit or loss  

 

  Level 2 

 

        479,947

 

        465,686

 

        479,947

 

        465,686

Debentures (Note 19)

 

  Amortized cost 

 

 

 

     3,026,700

 

     3,049,949

 

     2,886,502

 

     2,866,981

Derivative transactions (Note 30)

 

  Measured at fair value through OCI

 

  Level 2 

 

          47,776

 

          22,845

 

          47,776

 

          22,845

Total financial liabilities

 

 

 

 

 

   20,942,391

 

   13,924,573

 

   20,935,803

 

   13,933,763

 

Page 64


 
 

(A free translation of the original in Portuguese)

 

Telefônica Brasil S. A.

NOTES TO THE QUARTERLY FINANCIAL STATEMENTS

Three and nine-month periods ended September 30, 2019

(In thousands of Reais, unless otherwise stated)

  

 

Consolidated

 

 

 

 

Fair value hierarchy

 

Book value

 

Fair value

 

 

Classification by category

 

 

09.30.19

 

12.31.18

 

09.30.19

 

12.31.18

Financial Assets 

 

 

 

 

 

 

 

 

 

 

 

 

Current

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents  (Note 3)

 

  Amortized cost 

 

 

 

     4,548,256

 

     3,381,328

 

     4,548,256

 

     3,381,328

Trade accounts receivable (Note 4)

 

  Amortized cost 

 

 

 

     8,930,780

 

     8,304,382

 

     8,930,780

 

     8,304,382

Derivative transactions (Note 30)

 

  Measured at fair value through OCI

 

  Level 2 

 

          11,999

 

          69,065

 

          11,999

 

          69,065

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-current

 

 

 

 

 

 

 

 

 

 

 

 

Investments pledged as collateral

 

  Amortized cost 

 

 

 

          75,587

 

          76,934

 

          75,587

 

          76,934

Trade accounts receivable (Note 4)

 

  Amortized cost 

 

 

 

        450,218

 

        426,252

 

        450,218

 

        426,252

Derivative transactions (Note 30)

 

  Measured at fair value through OCI

 

  Level 2 

 

          53,250

 

          26,468

 

          53,250

 

          26,468

Total financial assets

 

 

 

 

 

   14,070,090

 

   12,284,429

 

   14,070,090

 

   12,284,429

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial Liabilities

 

 

 

 

 

 

 

 

 

 

 

Current

 

 

 

 

 

 

 

 

 

 

 

 

Trade accounts payable, net (Note 15)

 

  Amortized cost 

 

 

 

     7,091,752

 

     7,642,782

 

     7,091,752

 

     7,642,782

Loans, financing and leases (Note 19)

 

  Amortized cost 

 

 

 

        738,774

 

     1,076,451

 

        740,701

 

     1,135,732

Loans, financing and leases (Note 19)

 

  Measured at fair value through profit or loss  

 

  Level 2 

 

     1,834,988

 

        263,754

 

     1,834,988

 

        263,754

Debentures (Note 19)

 

  Amortized cost 

 

 

 

          67,014

 

          82,840

 

        199,945

 

        237,144

Debentures (Note 19)

 

  Measured at fair value through profit or loss  

 

  Level 2 

 

          42,829

 

          41,121

 

          42,829

 

          41,121

Derivative transactions (Note 30)

 

  Measured at fair value through profit or loss  

 

  Level 2 

 

               886

 

          16,316

 

               886

 

          16,316

Derivative transactions (Note 30)

 

  Measured at fair value through OCI

 

  Level 2 

 

                    -

 

               222

 

                    -

 

               222

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-current

 

 

 

 

 

 

 

 

 

 

 

 

Loans, financing and leases (Note 19)

 

  Amortized cost 

 

 

 

          63,838

 

        817,908

 

          62,590

 

        796,481

Loans, financing and leases (Note 19)

 

  Measured at fair value through profit or loss  

 

  Level 2 

 

     7,456,334

 

        341,728

 

     7,456,334

 

        341,728

Contingent consideration (Note 19)

 

  Measured at fair value through profit or loss  

 

  Level 2 

 

        479,947

 

        465,686

 

        479,947

 

        465,686

Debentures (Note 19)

 

  Amortized cost 

 

 

 

     3,026,700

 

     3,049,949

 

     2,886,502

 

     2,866,981

Derivative transactions (Note 30)

 

  Measured at fair value through OCI

 

  Level 2 

 

          47,776

 

          22,845

 

          47,776

 

          22,845

Total financial liabilities

 

 

 

 

 

   20,850,838

 

   13,821,602

 

   20,844,250

 

   13,830,792

 

c) Capital management

 

The purpose of the Company's capital management is to ensure maintenance of a high credit rating and an optimal capital ratio to support the Company's business and maximize shareholder value.

 

The Company manages its capital structure by making adjustments and adapting to current economic conditions. For this purpose, the Company may pay dividends, obtain new loans, issue debentures and contract derivatives. In the nine-month period ended September 30, 2019, there were no changes in capital structure objectives, policies or processes.

 

The Company’s debt structure includes loans, financing, debentures, leases, contingent consideration and transactions with derivatives, less cash and cash equivalents, short-term investments to secure BNB financing and guarantor of the contingent consideration liability.

 

The Company’s ratio of consolidated debt to shareholders’ equity consists of the following:

 

 

Page 65


 
 

(A free translation of the original in Portuguese)

 

Telefônica Brasil S. A.

NOTES TO THE QUARTERLY FINANCIAL STATEMENTS

Three and nine-month periods ended September 30, 2019

(In thousands of Reais, unless otherwise stated)

 

 

  Consolidated 

 

09.30.19

 

12.31.18

Cash and cash equivalents

4,548,256

 

3,381,328

Loans, financing, debentures, leases and contingent consideration (1)

(13,710,424)

 

(6,139,437)

Derivative transactions, net

16,587

 

56,150

Short-term investment pledged as collateral

13,055

 

12,473

Asset guarantor of contingent consideration

479,947

 

465,686

Net debt

8,652,579

 

2,223,800

Net equity

70,612,262

 

71,607,027

Net debt-to-equity ratio

12.25%

 

3.11%

 

 

(1)  As of September 30, 2019, includes the effects of the adoption of IFRS 16 on January 1, 2019 (Note 19).

 

d) Risk management policy

 

The Company and its subsidiaries are exposed to several market risks as a result of its commercial operations, debts contracted to finance its activities and debt-related financial instruments.

 

d.1) Currency Risk

 

Risk arising from foreign exchange rate volatility, affecting loans denominated in foreign currencies.

 

There is also a foreign exchange risk for financial assets and liabilities denominated in foreign currencies, which may generate a smaller amount receivable or larger amount payable depending on the exchange rate in the period.

 

Hedging transactions were executed to minimize the risks associated with exchange rate on financial assets and liabilities in foreign currencies. This balance is subject to daily changes due to the dynamics of the business. However, the Company intends to cover the net balance of these assets and obligations (US$26,618 thousand receivable, €843 thousand and £110 thousand paid by September 30, 2019 and US$61,909 thousand and €15,624 thousand receivable by December 31, 2018) to mitigate its foreign exchange risks.

 

d.2) Interest and Inflation Risk

 

This risk may arise from an unfavorable change in the domestic interest rate, which may adversely affect financial expenses from the portion of debentures referenced to the CDI and liability positions in derivatives (currency hedge and IPCA) pegged to floating interest rates (CDI).

Inflation risk arises from the “Minas Comunica” debentures of the 1st issue, which are tied to the IPCA and thus may adversely affect financial expenses in the event of an unfavorable change in this index.

 

To reduce exposure to the floating interest rate (CDI), the Company and its subsidiaries invested cash equivalents of R$4,396,457 at September 30, 2019 (R$3,175,730 at December 31, 2018), mostly in short-term CDI-based financial investments (CDBs). The carrying amounts of these instruments approximate their fair values, as they may be redeemed in the short term.

 

d.3) Liquidity Risk

 

Liquidity risk may arise from having insufficient funds to meet commitments in different currencies and dates of realization of rights and settlement of obligations.

 

Page 66


 
 

(A free translation of the original in Portuguese)

 

Telefônica Brasil S. A.

NOTES TO THE QUARTERLY FINANCIAL STATEMENTS

Three and nine-month periods ended September 30, 2019

(In thousands of Reais, unless otherwise stated)

                                           

 

The Company structures the maturity dates of non-derivative financial contracts (Note 19), and their respective derivatives, as shown in the schedule of payments disclosed in this note, to avoid affecting their liquidity.

The Company’s cash flow and liquidity are managed on a daily basis by the operating departments to ensure that cash flows and contracted funding, when necessary, is sufficient to meet scheduled commitments in to avoid liquidity risk.

 

The following is a summary of the maturity profile of the consolidated financial liabilities, which include principal and future interest rates up to the date of maturity. For fixed rate liabilities, interest was calculated based on the indices established in each contract. For variable rate liabilities, interest was calculated based on the market forecast for each period.

 

 

At 09.30.19

 

1 to 12 months

 

13 to 24 months

 

25 to 36 months

 

37 to 48 months

 

49 to 60 months

 

From 61 months

 

Total

Trade accounts payable

 

           7,091,752

 

                          -

 

                          -

 

                          -

 

                          -

 

                          -

 

           7,091,752

Loans, financing

 

                32,151

 

                16,666

 

                14,181

 

                       16

 

                          -

 

                          -

 

                63,014

Leases (1)

 

           2,203,593

 

           1,934,921

 

           1,652,722

 

           1,426,927

 

           1,032,652

 

           2,389,486

 

         10,640,301

Contingent consideration

 

                          -

 

                          -

 

                          -

 

                          -

 

                          -

 

              479,947

 

              479,947

Debentures

 

              204,202

 

           2,115,830

 

           1,036,550

 

                          -

 

                          -

 

                          -

 

           3,356,582

Derivative transactions

 

                     886

 

                          -

 

                          -

 

                          -

 

                          -

 

                47,776

 

                48,662

Total

 

           9,532,584

 

           4,067,417

 

           2,703,453

 

           1,426,943

 

           1,032,652

 

           2,917,209

 

         21,680,258

 

(1)  Includes the effects of the adoption of IFRS 16 on January 1, 2019 (Note 19).

 

d.4) Credit Risk

 

The risk arises from the possibility of the Company and its subsidiaries incurring losses due to difficulty in receiving amounts billed to their customers and sales of prepaid handsets and cards that have been pre-activated for the distribution network.

 

The credit risk on accounts receivable is diversified and mitigated by strict control of the customer base. The Company constantly monitors the level of accounts receivable from postpaid services and limits bad credit risk by cutting off access to telephone lines if bills are past due. The mobile customer base predominantly uses the prepaid system, which requires purchase of credits beforehand and therefore does not pose credit risk. Exceptions are made for emergency services that must be maintained for security or national defense reasons.

 

Credit risk on sales of pre-activated prepaid handsets and cards is managed by a conservative policy for granting credit, using modern credit scoring methods, analyzing financial statements and consultations to commercial databases, in addition to requesting guarantees.

 

The Company and its subsidiaries are also subject to credit risk arising from their investments, letters of guarantee received as collateral for certain transactions and receivables from derivative transactions. The Company and its subsidiaries control the credit limits granted to each counterpart and diversify this exposure across first-tier financial institutions as per current credit policies of financial counterparts.

 

d.5) Social and Environmental Risks

 

The Company's operations and properties are subject to various environmental laws and regulations that, among others, govern environmental licenses and records, protection of fauna and flora, air emissions, waste management and remediation of contaminated sites. If the Company fails to meet present and future requirements, or to identify and manage new or existing contamination, it will incur significant costs, which include cleaning costs, damages, compensation, fines, activities suspension and other penalties, investments to improve its facilities or change its processes, or interruption of operations. The identification of environmental conditions not currently identified, more stringent inspections by regulatory agencies, the entry into force of more stringent laws and regulations or other unanticipated events may occur and, ultimately, result in significant environmental liabilities and their costs. The occurrence of any of the above

Page 67


 
 

(A free translation of the original in Portuguese)

 

Telefônica Brasil S. A.

NOTES TO THE QUARTERLY FINANCIAL STATEMENTS

Three and nine-month periods ended September 30, 2019

(In thousands of Reais, unless otherwise stated)

                                           

factors could have a material adverse effect on the Company's business, results of operations and financial position. According to Article 75 of Law No. 9605 of 1998, the maximum fine per breach of environmental law is R$50,000 (fifty million Reais).

 

From a social point of view, the Company is exposed to contingent liabilities as it hires outsourced service providers. These potential liabilities may involve labor claims by employees of the service providers who file claims against the service provider and Company, request the conviction of the Company as an associate, that is, the Company may be compelled to pay in the case the provider does not settle these obligations. There is also a more remote possibility that these employees will be treated as direct employees by the Company, which would generate the risk of joint and several convictions. The demands that are known to Telefónica are already provided.

 

d.6) Insurance Coverage

 

The policy of the Company and its subsidiaries, as well as the Telefónica Group, includes contracting insurance coverage for all assets and liabilities involving significant and high-risk amounts, based on management's judgment and following Telefónica corporate program guidelines.

 

At September 30, 2019, maximum limits of claims (established pursuant to the agreements of each entity consolidated by the Company) for significant assets, liabilities or interests covered by insurance and their respective amounts were R$900,000 for operational risks (including business interruption) and R$75,000 for general civil liability.

 

d.7) Other Risks

The Company is required to comply with Brazilian anti-corruption laws and regulations on the same subject in jurisdictions where it has its securities traded. In particular, the Company is subject, in Brazil, to the Law n 12.846/2013 and, in the United States, to the U.S. Foreign Corrupt Practices Act of 1977.

Although the Company has internal policies and procedures designed to ensure compliance with the aforementioned anti-corruption laws and regulations, there can be no assurance that such policies and procedures will be sufficient or that the Company’s employees, directors, officers, partners, agents and service providers will not take actions in violation of the Company’s policies and procedures (or otherwise in violation of the relevant anti-corruption laws and regulations) for which the Company or they may be ultimately held responsible. Violations of anti-corruption laws and regulations could lead to financial penalties, damage to the Company’s reputation or other legal consequences that could have a material adverse effect on the Company’s business, results of operations and financial condition. 

31) ADDITIONAL INFORMATION ON CASH FLOWS

 

a)   Reconciliation of cash flow financing activities

 

The following is a reconciliation of the consolidated cash flow financing activities in the nine-month periods ended September 30, 2019 and 2018.

 

 

 

 

 

 

Cash flows from financing activities

 

Cash flows from operating activities

 

Financing activities not involving cash and cash equivalents

 

 

 

 

At 12/31/18

 

Write-offs (payments)

 

Write-offs (payments)

 

Financial charges and foreign exchange variation

 

Additions of leases and supplier financing

 

Cancellation of lease contracts

 

Initial adoption IFRS 16 in 01.01.19

 

Interim and unclaimed dividends and interest on equity

 

At 09/30/19

Interim dividends and interest on equity

 

4,172,916

 

(2,653,518)

 

  -

 

  -

 

  -

 

  -

 

  -

 

4,345,406

 

5,864,804

Loans and financing

 

2,106,814

 

(1,904,404)

 

(118,500)

 

  155,612

 

 563,052

 

  -

 

  -

 

  -

 

  802,574

Leases

 

  393,027

 

(1,164,609)

 

(306,190)

 

  342,068

 

1,421,057

 

(12,065)

 

8,618,072

 

  -

 

9,291,360

Debentures

 

3,173,910

 

- 25,583

 

(168,953)

 

  157,169

 

  -

 

  -

 

  -

 

  -

 

3,136,543

Derivative financial instruments

 

(56,150)

 

  71,217

 

  26,268

 

(57,922)

 

  -

 

  -

 

  -

 

  -

 

(16,587)

Contingent Consideration

 

  465,686

 

 -

 

  -

 

  14,261

 

  -

 

  -

 

  -

 

  -

 

  479,947

Total

 

10,256,203

 

(5,676,897)

 

- 567,375

 

  611,188

 

   1,984,109

 

- 12,065

 

8,618,072

 

4,345,406

 

19,558,641

 

 

Page 68


 
 

(A free translation of the original in Portuguese)

 

Telefônica Brasil S. A.

NOTES TO THE QUARTERLY FINANCIAL STATEMENTS

Three and nine-month periods ended September 30, 2019

(In thousands of Reais, unless otherwise stated)

                                           

 

 

 

 

 

Cash flows from financing activities

 

Cash flows from operating activities

 

Financing activities not involving cash and cash equivalents

 

 

 

 

At 12/31/17

 

Write-offs (payments)

 

Write-offs (payments)

 

Financial charges and foreign exchange variation

 

Additions of leases and supplier financing

 

Interim and unclaimed dividends and interest on equity

 

At 09/30/18

Interim dividends and interest on equity

 

2,396,116

 

(2,003,224)

 

  -

 

  -

 

  -

 

4,837,702

 

   5,230,594

Loans and financing

 

3,109,498

 

(1,172,354)

 

(168,458)

 

  191,045

 

  349,715

 

  -

 

2,309,446

Leases

 

  385,460

 

(27,224)

 

(10,425)

 

  15,255

 

  13,453

 

  -

 

  376,519

Debentures

 

4,520,739

 

(1,324,723)

 

(231,702)

 

  194,332

 

  -

 

  -

 

3,158,646

Derivative financial instruments

 

(143,754)

 

25,517

 

  -

 

7,034

 

  -

 

  -

 

(111,203)

Contingent Consideration

 

  446,144

 

  -

 

  -

 

  14,882

 

  -

 

  -

 

  461,026

Total

 

10,714,203

 

(4,502,008)

 

(410,585)

 

422,548

 

363,168

 

4,837,702

 

11,425,028

 

b)   Financing transactions that do not involve cash

 

The main transactions that do not involve cash of the Company refer to the acquisition of assets through leases and income from financing with suppliers, as follows:

 

 

 

 

Consolidated

 

 

 

 

 

09.30.19

 

09.30.18

Initial adoption IFRS 16 on 01.01.19

 

 

 

 

8,618,072

 

 -

Financing transactions with suppliers

 

 

 

 

 563,052

 

349,715

Acquisition of assets through leases

 

 

 

 

 1,421,057

 

13,453

Total

 

 

 

 

10,602,181

 

363,168

 

32) ADDITIONAL INFORMATION ON THE CONSOLIDATED STATEMENT OF INCOME - IFRS 16

 

The consolidated statement of income in the nine-month period ended September 30, 2019 includes the effects of the adoption of IFRS 16. To facilitate the understanding and comparability of the information, the following is the consolidated statement of income in the nine-month ended 30 September 2019 and 2018, excluding the effects of adopting IFRS 16.

 

 

Item

 

Cost of sales

 

Selling expenses

 

General and administrative expenses

 

Financial expenses

 

Total

Rental costs and expenses

 

(1,266,055)

 

  (48,710)

 

  (98,408)

 

  -

 

(1,413,173)

Depreciation costs and expenses

 

1,186,920

 

  56,581

 

  147,271

 

  -

 

1,390,772

Financial charges

 

 -

 

  -

 

  -

 

  290,306

 

  290,306

Income and social contribution taxes

 

  -

 

  -

 

  -

 

  -

 

  (91,088)

Total

 

  (79,135)

 

  7,871

 

  48,863

 

  290,306

 

  176,817

 

 

 

Page 69


 
 

(A free translation of the original in Portuguese)

 

Telefônica Brasil S. A.

NOTES TO THE QUARTERLY FINANCIAL STATEMENTS

Three and nine-month periods ended September 30, 2019

(In thousands of Reais, unless otherwise stated)

                                           

 

 

Nine-month period ended 09.30.19

 

Nine-month period ended 09.30.18

 

Statements of Income (IFRS 16)

 

IFRS 16 adjustments

 

Statements of Income (IAS 17)

 

Statements of Income (IAS 17)

Net operating revenue

32,891,316

 

  -

 

32,891,316

 

32,377,261

Cost of sales

(16,351,888)

 

  (79,135)

 

(16,431,023)

 

(15,426,953)

Gross profit

16,539,428

 

  (79,135)

 

16,460,293

 

16,950,308

 

 

 

 

 

 

 

 

Operating income (expenses)

(11,303,356)

 

  56,734

 

(11,246,622)

 

(9,217,666)

Selling expenses

(9,597,927)

 

  7,871

 

(9,590,056)

 

(9,653,228)

General and administrative expenses

(1,803,194)

 

  48,863

 

(1,754,331)

 

(1,896,390)

Other operating income

  619,592

 

  -

 

  619,592

 

3,780,383

Other operating expenses

  (521,827)

 

  -

 

  (521,827)

 

(1,448,431)

Operating income

5,236,072

 

  (22,401)

 

5,213,671

 

7,732,642

 

 

 

 

 

 

 

 

Financial income

  918,398

 

  -

 

  918,398

 

3,699,511

Financial expenses

(1,554,863)

 

  290,306

 

(1,264,557)

 

(1,747,420)

Equity pickup

(714)

 

  -

 

(714)

 

  (4,914)

Income before taxes

4,598,893

 

  267,905

 

4,866,798

 

9,679,819

Income and social contribution taxes

  (872,133)

 

  (91,088)

 

  (963,221)

 

(2,238,239)

 

 

 

 

 

 

 

 

Net income for the period

3,726,760

 

  176,817

 

3,903,577

 

7,441,580

 

33) CONTRACTUAL COMMITMENTS

 

The Company and its subsidiaries have unrecognized contractual commitments arising from the purchase of goods and services, which mature on several dates, with monthly payments.

 

As at September 30, 2019, the total nominal values equivalent to the full contract period were:

 

 

 

 

 

 

Consolidated

1 to 12 months

 

 

 

 1,408,232

13 to 24 months

 

 

 

 1,177,179

25 to 36 months

 

 

 

 887,611

37 to 48 months

 

 

 

 408,064

49 to 60 months

 

 

 

 181,798

From 61 months

 

 

 

 512,022

Total

 

 

 

 4,574,906

 

    

Page 70

 

SIGNATURE

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

 

TELEFÔNICA BRASIL S.A.

Date:

November 5, 2019

 

By:

/s/ Luis Carlos da Costa Plaster

 

 

 

 

Name:

Luis Carlos da Costa Plaster

 

 

 

 

Title:

Investor Relations Director